Expropriation Risk and Firm Growth: A Corporate Transparency Channel

53 Pages Posted: 29 Dec 2008 Last revised: 11 May 2011

See all articles by Art Durnev

Art Durnev

University of Iowa - Henry B. Tippie College of Business

Sergei Guriev

Institut d'Etudes Politiques de Paris (Sciences Po); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: May 9, 2011

Abstract

We propose a new channel through which expropriation risk reduces capital allocation efficiency and decreases firm growth. We build an agency model of corporate disclosure when companies face risks of expropriation. The model predicts that in countries with insecure property rights, corporations mitigate the risk of expropriation by reducing transparency. We test this channel by employing a difference-in-difference approach. Using a panel of over 16,000 firms from 84 countries, we find that transparency of companies prone to expropriation is lower in countries with insecure property rights. The reduced transparency has an adverse effect on the efficiency of capital allocation and corporate growth.

Keywords: Resource Curse, Expropriation, Politics and Finance, Corporate Transparency and Disclosure, Investment Efficiency, Industry Growth

JEL Classification: G15

Suggested Citation

Durnev, Artyom and Guriev, Sergei, Expropriation Risk and Firm Growth: A Corporate Transparency Channel (May 9, 2011). Available at SSRN: https://ssrn.com/abstract=1320966 or http://dx.doi.org/10.2139/ssrn.1320966

Artyom Durnev (Contact Author)

University of Iowa - Henry B. Tippie College of Business ( email )

12348 DEWHURST AVE
HENRICO, VA Henrico 23233-7848
United States
3193831295 (Phone)

Sergei Guriev

Institut d'Etudes Politiques de Paris (Sciences Po) ( email )

27 rue Saint-Guillaume
Paris Cedex 07, 75337
France

HOME PAGE: http://econ.sciences-po.fr/staff/sergei-guriev

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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