Political Corruption and Firm Value in the U.S.: Do Rents and Monitoring Matter?
Political corruption imposes substantial costs on shareholders in the U.S. Yet, we understand little about the basic factors that exacerbate or mitigate the value consequences of political corruption. Using federal corruption convictions data, we find that firm-level economic rents and monitoring mechanisms moderate the negative relation between corruption and firm value. The value consequences of political corruption are exacerbated for firms operating in low-rent product markets and mitigated for firms subject to external monitoring by state governments or monitoring induced by disclosure transparency. Our results should inform managers and policymakers of the tradeoffs imposed on firms operating in politically corrupt districts.
KeywordsPolitical corruption Firm value Tobin’s Q
We thank Greg Shailer (Editor), three anonymous reviewers, Helen Brown-Liburd, David Denis, Diane Denis, Jing He, Andy Koch, Ahmet Kurt, Tianshu Qu (Discussant), Tom Shohfi, Scott Smart, Bryan Stikeleather, Shawn Thomas, Jack White, and seminar participants at Georgia State University, North Carolina State University, University of Florida, University of Pittsburgh, and the American Accounting Association Annual Meeting for insightful comments and suggestions. We also thank Diego García and Øyvind Norli for sharing data on firm operations and Gerald Hoberg and Gordon Phillips for sharing data on industry competition.
All authors did not receive funding from any sources.
Compliance with Ethical Standards
This article does not contain any studies with human participants or animals performed by any of the authors.
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