Public Corruption in the United States Implications for Local Firms

49 Pages Posted: 2 Jan 2016

See all articles by Nishant Dass

Nishant Dass

Georgia Institute of Technology - Scheller College of Business

Vikram K. Nanda

University of Texas at Dallas - School of Management - Department of Finance & Managerial Economics

Steven Chong Xiao

University of Texas at Dallas - Naveen Jindal School of Management

Date Written: December 6, 2015

Abstract

We study the relation between public corruption and the value as well as disclosure policies of firms at the state level in the United States. Consistent with our hypotheses, firms have significantly lower value (Tobin's Q) and informational transparency in more corrupt areas. Local corruption has a less negative effect on industries that sell primarily to the government, suggestive of quid-pro-quo between these firms and public officials. Several tests address endogeneity concerns: e.g., firms located in different states but close to state-borders are affected by differences in state-level corruption, indicating legal jurisdiction matters despite similar local conditions. Results are robust to instrumenting for corruption using long-established institutional variables; and events likely to increase scrutiny of corrupt activities have a more negative announcement-period effect on firms in corrupt environments.

Keywords: Corruption, Firm Value, Government Procurement, Earnings Guidance, Stock Liquidity

JEL Classification: D73, G34

Suggested Citation

Dass, Nishant and Nanda, Vikram K. and Xiao, Steven Chong, Public Corruption in the United States Implications for Local Firms (December 6, 2015). Georgia Tech Scheller College of Business Research Paper No. #34. Available at SSRN: https://ssrn.com/abstract=2709643 or http://dx.doi.org/10.2139/ssrn.2709643

Nishant Dass (Contact Author)

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States
404-894-5109 (Phone)

HOME PAGE: http://scheller.gatech.edu/dass

Vikram K. Nanda

University of Texas at Dallas - School of Management - Department of Finance & Managerial Economics ( email )

2601 North Floyd Road
P.O. Box 830688
Richardson, TX 75083
United States

Steven Chong Xiao

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

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