Political Corruption and Firm Value in the U.S.

Nerissa C. Brown, Jared D. Smith, Roger M. White, Chad J. Zutter

Research output: Working paper

Abstract

Using U.S. District Court system data, we provide evidence of substantial variation in political corruption across the U.S., despite the widely held view that corruption is illegal and unethical. Further, using an inclusive sample of U.S. firms over a 30-year period, we find a negative relation between political corruption and firm value that is robust to controlling for endogeneity concerns.

The magnitude of this relation is attenuated by several factors capturing:

(1) the magnitude of firm rents available for expropriation and,

(2) the strength of firm-level monitoring mechanisms.

Our results also indicate that corruption lowers firm investment efficiency, which perhaps contributes to the negative relation between corruption and firm value. Taken together, our results suggest that national attitudes toward political corruption’s ethicality do little to restrain public officials in the U.S. from imposing substantial costs on shareholders.
Original languageEnglish (US)
Number of pages64
DOIs
StatePublished - Mar 28 2018

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Corruption
Firm value
Factors
Expropriation
Firm investment
Endogeneity
Costs
Shareholders
Rent
Investment efficiency
Monitoring

Keywords

  • political corruption
  • firm value
  • Tobin's Q

Cite this

Political Corruption and Firm Value in the U.S. / Brown, Nerissa C.; Smith, Jared D.; White, Roger M.; Zutter, Chad J.

2018.

Research output: Working paper

Brown, Nerissa C. ; Smith, Jared D. ; White, Roger M. ; Zutter, Chad J. / Political Corruption and Firm Value in the U.S. 2018.
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