Caught with the Hand in the Cookie Jar: Firm Growth and Labor Reallocation after Exposure of Corrupt Practices

37 Pages Posted: 9 Mar 2017 Last revised: 21 Nov 2017

See all articles by Spyridon Lagaras

Spyridon Lagaras

University of Pittsburgh, Katz Graduate Business School

Jacopo Ponticelli

Northwestern University - Kellogg School of Management

Margarita Tsoutsoura

Cornell University; National Bureau of Economic Research (NBER)

Date Written: November 20, 2017

Abstract

Corrupt practices in the assignment of government contracts are largely diffused and can generate misallocation of resources across firms. We study how disclosure of such practices affects firm growth and labor reallocation. We exploit exogenous variation in the exposure of illegally favored firms using random municipality audits by a large anti-corruption government program in Brazil. Firms exposed by the auditing program experience a decline in employment growth relative to their peers. We document that young, less-educated workers that do not occupy a managerial position have higher probability to leave the exposed firms. Released workers tend to reallocate to firms not found to be illegally favored. Within-sector firm size dispersion decreases in audited municipalities with respect to non-audited ones. Our evidence suggests that random auditing programs can reduce labor misallocation across firms.

Suggested Citation

Lagaras, Spyridon and Ponticelli, Jacopo and Tsoutsoura, Margarita, Caught with the Hand in the Cookie Jar: Firm Growth and Labor Reallocation after Exposure of Corrupt Practices (November 20, 2017). Available at SSRN: https://ssrn.com/abstract=2929625 or http://dx.doi.org/10.2139/ssrn.2929625

Spyridon Lagaras

University of Pittsburgh, Katz Graduate Business School ( email )

3950 Roberto Clemente Dr
334 Mervis Hall
Pittsburgh, PA Allegheny 15260
United States

Jacopo Ponticelli (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2211 Campus Dr
Evanston, IL 60208
United States

HOME PAGE: http://https://www.kellogg.northwestern.edu/faculty/ponticelli/index.html

Margarita Tsoutsoura

Cornell University ( email )

Ithaca, NY 14853
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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