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 language | English (US) |
|---|---|
| Pages (from-to) | 1097-1119 |
| Number of pages | 23 |
| Journal | Journal of Financial Economics |
| Volume | 143 |
| Issue number | 3 |
| DOIs | |
| State | Published - Mar 2022 |
Funding
Toni Whited was the editor for this article. We thank many seminar participants and discussants. Mark He and Naoko Yatabe provided excellent research assistance. We are grateful to The University of Chicago Booth School of Business, the Fama Research Fund, the Liew Family Junior Faculty Fellowship, the Initiative on Global Markets, the Stanford SEED, SCID, and IRiSS centers, the CEPR-PEDL Initiative, and the J-PAL Governance Initiative for financial support.
Keywords
- Brazil
- Corruption
- Firms
- Government contracts
- Investment
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics
- Strategy and Management
