Revealing corruption: Firm and worker level evidence from Brazil

Emanuele Colonnelli*, Spyridon Lagaras, Jacopo Ponticelli, Mounu Prem, Margarita Tsoutsoura

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

We study how the disclosure of corrupt practices affects the growth of firms involved in illegal interactions with the government using randomized audits of public procurement in Brazil. On average, firms exposed by the anti-corruption program grow larger after the audits, despite experiencing a decrease in procurement contracts. We manually collect new data on the details of thousands of corruption cases, through which we uncover a large heterogeneity in our firm-level effects depending on the degree of involvement in corruption. Using investment-, loan-, and worker- level data, we show that the average exposed firms adapt to the loss of government contracts by changing their investment strategy. They increase capital investment and borrow more to finance such investment, while there is no change in their internal organization. We provide qualitative support to our results by conducting new face-to-face surveys with business owners of government-dependent firms.

Original languageEnglish (US)
Pages (from-to)1097-1119
Number of pages23
JournalJournal of Financial Economics
Volume143
Issue number3
DOIs
StatePublished - Mar 2022
Externally publishedYes

Keywords

  • Brazil
  • Corruption
  • Firms
  • Government contracts
  • Investment

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management

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