Political Corruption and Firm Value in the U.S.: Do Rents and Monitoring Matter?

Journal of Business Ethics, Forthcoming

48 Pages Posted: 28 Mar 2018 Last revised: 5 Sep 2019

See all articles by Nerissa C. Brown

Nerissa C. Brown

University of Illinois at Urbana-Champaign

Jared D. Smith

North Carolina State University - Poole College of Management

Roger M. White

Arizona State University (ASU) - School of Accountancy

Chad J. Zutter

University of Pittsburgh - Finance Group

Date Written: April 27, 2019

Abstract

Political corruption imposes substantial costs on shareholders in the U.S. Yet, we understand little about the basic factors that constrain or exacerbate the negative consequences of political corruption. Using federal corruption convictions data, we find that firm-level economic rents and monitoring mechanisms moderate the negative relation between corruption and firm value. Political corruption is detrimental to firms operating in low-rent product markets. Our evidence also suggests that external monitoring by state governments and monitoring induced by disclosure transparency are important mitigating factors. Our results should inform managers and policymakers of the tradeoffs imposed on firms operating in politically corrupt districts.

Keywords: political corruption, firm value, Tobin's Q

Suggested Citation

Brown, Nerissa C. and Smith, Jared D. and White, Roger M. and Zutter, Chad J., Political Corruption and Firm Value in the U.S.: Do Rents and Monitoring Matter? (April 27, 2019). Journal of Business Ethics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3147385 or http://dx.doi.org/10.2139/ssrn.3147385

Nerissa C. Brown

University of Illinois at Urbana-Champaign ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

Jared D. Smith

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

Chad J. Zutter (Contact Author)

University of Pittsburgh - Finance Group ( email )

352 Mervis Hall, Katz GSOB
University of Pittsburgh
Pittsburgh, PA 15260
United States
412-648-2159 (Phone)
412-648-1693 (Fax)

HOME PAGE: http://www.pitt.edu/~czutter/

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