Greased Wheels or Just Greased Palms: Political Corruption and Firm Value

61 Pages Posted: 10 Jul 2011 Last revised: 11 Feb 2018

See all articles by Nerissa C. Brown

Nerissa C. Brown

University of Illinois at Urbana-Champaign

Jared D. Smith

North Carolina State University - Poole College of Management

Roger M. White

Arizona State University (ASU) - School of Accountancy

Chad J. Zutter

University of Pittsburgh - Finance Group

Date Written: August 2015

Abstract

Using an inclusive sample of U.S. firms over a nearly 30-year period, we find a negative relation between political corruption and firm value that is robust to controlling for potential endogeneity. The magnitude of this relation is attenuated by firm size, firm age, competitive product markets, and strong audit monitoring. Our results also indicate that strong corporate governance may not be value maximizing in corrupt environments and that corruption lowers firm investment efficiency, which perhaps contributes to the negative relation between corruption and value. Taken together, our results suggest that political corruption in the U.S. imposes substantial costs on shareholders.

Keywords: Tobin's Q, firm value, political corruption

JEL Classification: G30, G34, G38, D73

Suggested Citation

Brown, Nerissa C. and Smith, Jared D. and White, Roger M. and Zutter, Chad J., Greased Wheels or Just Greased Palms: Political Corruption and Firm Value (August 2015). Available at SSRN: https://ssrn.com/abstract=1882011 or http://dx.doi.org/10.2139/ssrn.1882011

Nerissa C. Brown

University of Illinois at Urbana-Champaign ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

Jared D. Smith

North Carolina State University - Poole College of Management ( email )

Nelson Hall
Raleigh, NC 27695-8614
United States

Roger M. White (Contact Author)

Arizona State University (ASU) - School of Accountancy ( email )

Tempe, AZ 85287
United States

Chad J. Zutter

University of Pittsburgh - Finance Group ( email )

352 Mervis Hall, Katz GSOB
University of Pittsburgh
Pittsburgh, PA 15260
United States
412-648-2159 (Phone)
412-648-1693 (Fax)

HOME PAGE: http://www.pitt.edu/~czutter/

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