Local Corruption, Whistleblowing, and Debt Financing

52 Pages Posted: 16 Jun 2020

See all articles by Qingjie Du

Qingjie Du

Hong Kong Polytechnic University - School of Accounting and Finance

Iftekhar Hasan

Fordham University ; Bank of Finland; University of Sydney

Yang Wang

Hong Kong Polytechnic University

K.C. John Wei

Hong Kong Polytechnic University

Date Written: May 1, 2020

Abstract

The paper investigates whether and how a state’s local corruption environment affects firms’ financing costs. We find that firms in high-corruption states are associated with significantly higher loan spreads and tighter loan covenants. We use an instrumental variable approach and a quasi-experiment of firms’ headquarters re-locations to establish causality. Moreover, the passage of whistle-blowing laws, in the name of anti-corruption, increases firms’ bank loan costs and amplifies the impact of local corruption. Overall, we document the externality of local corruption environment on resident firms’ financing costs and the unintended outcomes of whistle-blowing laws.

Keywords: Dodd–Frank, Corruption, Bank Loan Cost, Whistle-blowing

JEL Classification: G21, G32, D72

Suggested Citation

Du, Qingjie and Hasan, Iftekhar and Wang, Yang and Wei, Kuo-Chiang (John), Local Corruption, Whistleblowing, and Debt Financing (May 1, 2020). Available at SSRN: https://ssrn.com/abstract=3607945 or http://dx.doi.org/10.2139/ssrn.3607945

Qingjie Du (Contact Author)

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

Iftekhar Hasan

Fordham University ( email )

45 COLUMBUS AVENUE
GBA-5TH FLOOR
NEW YORK, NY 10023
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

Yang Wang

Hong Kong Polytechnic University ( email )

Hong Kong

Kuo-Chiang (John) Wei

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

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