Corruption and Corporate Innovation

Journal of Financial and Quantitative Analysis, 2020 (vol. 55, no. 7, p. 2124-2149)

46 Pages Posted: 5 Nov 2016 Last revised: 9 Dec 2021

See all articles by Jesse A. Ellis

Jesse A. Ellis

North Carolina State University

Jared D. Smith

North Carolina State University - Poole College of Management

Roger M. White

Arizona State University (ASU) - School of Accountancy

Date Written: October 26, 2015

Abstract

We examine whether political corruption impedes innovation. Using a comprehensive sample of US firms, we find that corruption has a substantial, negative relation with the quantity and quality of innovation. These results are robust to using various fixed effects, proxies for corruption and innovation, and subsamples. To establish causality, we employ two instruments for corruption: local ethnic diversity and the corruption of the state a firm’s founder grew up in. Corruption appears to reduce innovation output both on average and for the most innovative firms. Overall, this evidence is consistent with the notion that corruption reduces social welfare by impeding innovation.

Keywords: Innovation, corruption, research & development, rent-seeking

JEL Classification: G31, G38, D72, O31

Suggested Citation

Ellis, Jesse A. and Smith, Jared D. and White, Roger M., Corruption and Corporate Innovation (October 26, 2015). Journal of Financial and Quantitative Analysis, 2020 (vol. 55, no. 7, p. 2124-2149), Available at SSRN: https://ssrn.com/abstract=2862128 or http://dx.doi.org/10.2139/ssrn.2862128

Jesse A. Ellis

North Carolina State University ( email )

Poole College of Management
Campus Box 7229
Raleigh, NC 27695
United States
919-515-9670 (Phone)

Jared D. Smith (Contact Author)

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

Nelson Hall
Raleigh, NC 27695-8614
United States

Roger M. White

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

Tempe, AZ 85287
United States

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