Economic Uncertainty and Corruption: Evidence From Public and Private Firms

60 Pages Posted: 2 Aug 2021 Last revised: 15 Sep 2021

See all articles by Mansoor Afzali

Mansoor Afzali

Hanken School of Economics

Gonul Colak

University of Sussex ; Hanken School of Economics

Mengchuan Fu

Fordham University - Gabelli School of Business

Date Written: September 15, 2021

Abstract

We study the influence of policy uncertainty on the moral behavior of firms. When facing uncertainty, managers perceive various socioeconomic obstacles as more severe and disruptive to their business. Using data from policy uncertainty spouts in 93 countries, we document that some firms engage in norm-deviant behavior by cheating on taxes and paying more bribes. While private firms prefer to cheat on taxes, public firms choose bribery as a favorite tool to “grease the wheels” during periods of uncertainty. Strong social capital (local trust and religiosity) breaks this link between uncertainty and corruption.

Keywords: economic policy uncertainty, private firms, corruption, bribery, cheating on taxes, trust, religiosity

JEL Classification: D80, F30, G38, O43, P48

Suggested Citation

Afzali, Mansoor and Colak, Gonul and Fu, Mengchuan, Economic Uncertainty and Corruption: Evidence From Public and Private Firms (September 15, 2021). Journal of Financial Stability, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3894468 or http://dx.doi.org/10.2139/ssrn.3894468

Mansoor Afzali

Hanken School of Economics ( email )

FI-00101 Helsinki
Finland

Gonul Colak (Contact Author)

University of Sussex ( email )

Jubilee Building
Falmer
Brighton, BN1 9SN
United Kingdom

Hanken School of Economics ( email )

P.O. Box 479
Arkadiankatu 22
FI-00100 Helsinki, 00100
Finland

Mengchuan Fu

Fordham University - Gabelli School of Business ( email )

113 West 60th Street
Bronx, NY 10458
United States

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