Swimming Upstream: Struggling Firms in Corrupt Cities

36 Pages Posted: 19 Nov 2014 Last revised: 18 Apr 2018

See all articles by Christopher A. Parsons

Christopher A. Parsons

Foster School of Business, University of Washington

Johan Sulaeman

National University of Singapore (NUS) - Department of Finance

Sheridan Titman

University of Texas at Austin - Department of Finance; National Bureau of Economic Research (NBER)

Date Written: April 4, 2018

Abstract

We find that a corrupt local environment amplifies the effects of financial distress. Following regional spikes in financial misconduct, credit becomes both more expensive and harder to obtain for nearby borrowers -- even those not implicated themselves. This is particularly harmful for cash-constrained firms, which cut investment more sharply and lay off more workers during industry downturns. Moreover, we find that local waves of financial misconduct are a risk factor for bankruptcy.

Keywords: financial misconduct, corporate failure, bankruptcy, loan spread, security issuance, trust

JEL Classification: G21, G32, G33, R30, J64

Suggested Citation

Parsons, Christopher A. and Sulaeman, Johan and Titman, Sheridan, Swimming Upstream: Struggling Firms in Corrupt Cities (April 4, 2018). Available at SSRN: https://ssrn.com/abstract=2526585 or http://dx.doi.org/10.2139/ssrn.2526585

Christopher A. Parsons

Foster School of Business, University of Washington ( email )

PACCAR HALL
4273 E Stevens Way NE
Seattle, WA 98195
United States

Johan Sulaeman (Contact Author)

National University of Singapore (NUS) - Department of Finance ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

HOME PAGE: http://sites.google.com/site/johansulaeman/

Sheridan Titman

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-232-2787 (Phone)
512-471-5073 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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