25th Annual IAJBS World Forum / Inaugural CJBE South Asia Regional Chapter Meeting

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Chandan Jha
Chandan Kumar Jha, Prateek Sharma, Sunny Singh

Corruption and Financial Risk: Firm-Level Evidence

This study assesses the effects of different measures of corruption on financial risk for a sample of around 5,450 firms across 35 countries over the period of 2003-2016. We find that bribe intensity (measured as the total bribe to sales ratio) reduces the level of financial risk (measured by equity price volatility) of firms for the entire sample. It is shown that while corruption reduces the financial risk for large firms, it causes increases the financial risk for small firms. Furthermore, we investigate the effects of corruption in different sectors on financial risk. We find that bribery to tax officials and bribes paid to obtain construction permits are each significantly, positively associated with the financial risk. Moreover, while bribery to obtain a telephone connection is found to be positively and significantly associated with the financial risk, bribery to obtain other utility services like water and electricity connections and bribery to receive import license have no significant effect on financial risk.