The Dark Side of Disclosure: Evidence of Government Expropriation from Worldwide Firms

50 Pages Posted: 20 Apr 2016

See all articles by Tingting Liu

Tingting Liu

Iowa State University

Barkat Ullah

Morgan State University

Zuobao Wei

University of Texas at El Paso

Lixin Colin Xu

World Bank - Development Research Group (DECRG)

Date Written: May 4, 2015

Abstract

This paper studies the effects of voluntary accounting information disclosure through auditing on firm access to finance, exposure to corruption, and sales growth. Relying on a data set of more than 70,000 firms in 121 countries, the analysis finds that disclosure can be a double-edged sword. On the one hand, audited firms exhibit a slightly lower level of financial constraints than unaudited firms. On the other hand, audited firms face a significantly higher level of corruption obstacles. The net effects of voluntary information disclosure on firm growth are negative, which can largely be explained by the fact that most of the countries in the sample are developing countries where institutions are weak. The beneficial effect of disclosure increases as a country?s property rights protection improves. The qualitative results are robust to considerations of the endogeneity of auditing and to alternative measures of corruption and financial constraints. The findings reveal the dark side of voluntary information disclosure: exposing firms to government expropriation where institutions are weak.

Keywords: Private Sector Economics, Private Sector Development Law, Marketing

Suggested Citation

Liu, Tingting and Ullah, Barkat and Wei, Zuobao and Xu, Lixin Colin, The Dark Side of Disclosure: Evidence of Government Expropriation from Worldwide Firms (May 4, 2015). World Bank Policy Research Working Paper No. 7254. Available at SSRN: https://ssrn.com/abstract=2602586

Tingting Liu (Contact Author)

Iowa State University ( email )

2330 Gerdin Business Building
Ames, IA 50011
United States

Barkat Ullah

Morgan State University ( email )

Baltimore, MD 21251
United States

Zuobao Wei

University of Texas at El Paso ( email )

500 W. University Ave.
El Paso, TX 79968
United States
915-747-5381 (Phone)
915-747-6282 (Fax)

Lixin Colin Xu

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

1818 H Street, N.W.
MC 3-427
Washington, DC 20433
United States
202-473-4664 (Phone)
202-522-1155 (Fax)

HOME PAGE: http://econ.worldbank.org/staff/cxu

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