Eat, Drink, Firms, Government: An Investigation of Corruption from Entertainment and Travel Costs of Chinese Firms

23 Pages Posted: 17 Jul 2010

See all articles by Hongbin Cai

Hongbin Cai

Peking University - Guanghua School of Management

Hanming Fang

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

Lixin Colin Xu

World Bank - Development Research Group (DECRG); World Bank - Development Research Group (DECRG)

Date Written: July 16, 2010

Abstract

We propose "Entertainment and Travel Costs" (ETC) expenditures as a measure of corruption in Chinese firms. These expenses are publicly reported in firms' accounting books, and on average they amount to about 3% of firms' total value added. We find that ETC is a mix that includes "grease money" to get better government services, "protection money" to lower tax rates, managerial excesses, and normal business expenditures to build relational capital with suppliers and clients. ETC overall has a significantly negative effect on firm productivity, but we also find that some components of the ETC have substantial positive returns to the firms.

Keywords: Corruption, Government Expropriation, Corporate Governance

JEL Classification: L2, O1, H2

Suggested Citation

Cai, Hongbin and Fang, Hanming and Xu, Lixin Colin and Xu, Lixin Colin, Eat, Drink, Firms, Government: An Investigation of Corruption from Entertainment and Travel Costs of Chinese Firms (July 16, 2010). Journal of Law and Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1641224

Hongbin Cai

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China

Hanming Fang

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Lixin Colin Xu (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

1818 H Street NW
MSN3-311
Washington, DC 20433
United States

World Bank - Development Research Group (DECRG) ( email )

1818 H Street NW
MSN3-311
Washington, DC 20433
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
168
Abstract Views
1,064
rank
246,389
PlumX Metrics