Greased Wheels or Just Greased Palms: Political Corruption and Firm Value
61 Pages Posted: 10 Jul 2011 Last revised: 11 Feb 2018
Date Written: August 2015
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: Suggested Citation