Political Corruption, Dodd-Frank Whistleblowing, and Corporate Investment
57 Pages Posted: 13 May 2019 Last revised: 2 Apr 2021
Date Written: December 16, 2018
We examine how local political corruption affects corporate investment. We find firms in corrupted states produce significantly less investment. The effect of political corruption on investment is more pronounced in firms with higher investment friction, higher political visibility, and poor governance. The results are robust to using alternative investment measures, alternative corruption measures, and different regression specifications. More importantly, we find that the deterrent effect of corruption on investment lessens after the Dodd-Frank Whistleblower Provision. These findings indicate corruption impedes corporate investment, but the better policy can help firms reduce the decline in firms’ investment located in corrupted states.
Keywords: Dodd-Frank, Corruption, Corporate Investment, Whistleblowers
JEL Classification: G31, G32, G38, D72
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