Corporate profitability and the global persistence of corruption

Ferris, Stephen P. ; Hanousek, Jan ; Tresl, Jiri

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DOI:	https://doi.org/10.1016/j.jcorpfin.2020.101855
URL:	https://www.sciencedirect.com/science/article/pii/...
Additional URL:	https://www.researchgate.net/publication/347899853...
URN:	urn:nbn:de:bsz:180-madoc-631565
Document Type:	Article
Year of publication:	2021
The title of a journal, publication series:	Journal of Corporate Finance
Volume:	66
Issue number:	Article 101855
Page range:	1-18
Place of publication:	Amsterdam [u.a.]
Publishing house:	Elsevier
ISSN:	0929-1199
Publication language:	English
Institution:	Business School > ABWL, Finanzwirtschaft u. Finanzmarktinstitutionen (Spalt 2019-)
Pre-existing license:	Creative Commons Attribution, Non-Commercial, No Derivatives 4.0 International (CC BY-NC-ND 4.0)
Subject:	650 Management
Abstract:	We examine the persistence of corporate corruption for a sample of privately-held firms from 12 Central and Eastern European countries from 2001 to 2015. Using publicly available information and stochastic frontier analysis, we create 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. In spite of corruption's negative effects on a country's economy, we conclude that it persists because of its ability to improve corporate profitability. We refer to this effect as the Corporate Advantage Hypothesis.

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