Working Paper: CEPR ID: DP14341
Authors: Stephen Ferris; Jan Hanousek; Jiri Tresl
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: central and eastern europe; corruption; inefficiency; performance; private firms
JEL Codes: G30; F38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| corporate corruption (G38) | firm profitability (L21) |
| corporate corruption (G38) | return on assets (ROA) (G31) |
| corporate corruption (G38) | return on equity (ROE) (D33) |
| corporate corruption (G38) | profit margins (L21) |
| corporate corruption (G38) | turnover components of profitability (L21) |