Corporate Profitability and the Global Persistence of Corruption

CERGE-EI Working Paper Series No. 659

47 Pages Posted: 21 Jul 2020

See all articles by Stephen Ferris

Stephen Ferris

Ball State University

Jan Hanousek

CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute); Charles University in Prague; Academy of Sciences of the Czech Republic; Centre for Economic Policy Research (CEPR)

Jiri Tresl

University of Mannheim

Multiple version iconThere are 2 versions of this paper

Date Written: June 1, 2020

Abstract

We examine the persistence of corporate corruption for a sample of privately-held firms from 12 Central and Eastern European countries over the period 2001 to 2015. Creating a proxy for corporate corruption based on a firm’s internal inefficiency, we find that corruption enhances a firm’s profitability. A channel analysis further reveals that inflating staff costs is the most common approach by which firms divert funds to finance corruption. We conclude that corruption persists because of its ability to improve a firm’s return on assets, which we refer to as the Corporate Advantage Hypothesis.

Keywords: corruption, inefficiency, performance, private firms

JEL Classification: G30, F38

Suggested Citation

Ferris, Stephen and Hanousek, Jan and Tresl, Jiri, Corporate Profitability and the Global Persistence of Corruption (June 1, 2020). CERGE-EI Working Paper Series No. 659, Available at SSRN: https://ssrn.com/abstract=3637645 or http://dx.doi.org/10.2139/ssrn.3637645

Stephen Ferris (Contact Author)

Ball State University ( email )

Muncie, IN 47306-0340
United States

Jan Hanousek

CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute) ( email )

Politickych veznu 7
Prague 1, 111 21
Czech Republic
420 2 2400 5119 (Phone)
420 2 2421 1374 (Fax)

HOME PAGE: http://www.cerge-ei.cz

Charles University in Prague ( email )

Celetná 13
Praha 1, 116 36
Czech Republic

Academy of Sciences of the Czech Republic ( email )

Narodni 3, 111 42
Praha 1, 117 20
Czech Republic

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Jiri Tresl

University of Mannheim ( email )

Universitaetsbibliothek Mannheim
Zeitschriftenabteilung
Mannheim, 68131
Germany

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