Corruption Along Supply-Chain Networks
47 Pages Posted: 4 Aug 2021 Last revised: 19 Aug 2022
Date Written: July 25, 2021
I study how the corporate corruption culture of foreign suppliers and customers influences the propensity and magnitude of financial misconducts of US corporations. Using the World Bank Corruption Control Index, I find that firms connected to customers( suppliers) from countries with higher corruption culture are more likely to engage in financial misconduct, earnings management, and option backdating. I find that both the selection channel, where US firms with weaker corporate governance choose customers( suppliers) with high corruption culture, and the propagation channel, where the corruption cultures of foreign customers and suppliers influence US firms, explain the magnitude of the effects.
Keywords: corporate governance; trade networks; financial misconduct
JEL Classification: G30, G34.
Suggested Citation: Suggested Citation