Search results

AbstractPublic corruption in the government procurement process is rampant and its cost is huge, even among developed countries. Some scholars estimate that about 20%–30% of the values of government projects are lost due to public corruption. In this paper, we examine how public corruption impacts the allocation of U.S. federal contracts. Using the U.S. Department of Justice corruption convictions data and the federal contract data from 2000 to 2018, we find that firms located in more corrupt states receive more federal contract dollars, more important contracts in terms of their contributions to firm revenues, and contracts with higher visibility among federal contractors. We construct an influence/favoritism index that takes into account defense contracts, cost‐plus contracts, and multi‐year contracts, and document that the index is positively related to corruption levels. These results hold after we conduct several robustness tests, including 2SLS regressions, propensity‐score matching analysis, and using alternative corruption measures. Our empirical findings are consistent with the hypothesis that corruption plays an important role in how federal contracts are allocated.

AbstractWe examine the relation between financing patterns and firm growth in transition economies. Using a survey data set covering more than 20,000 firms in 30 Eastern European and Central Asian countries from 2002 to 2014, we find that firms using formal bank finance grow faster than those financed by informal sources. Our results hold after controlling for firm characteristics, country economic development, and potential endogeneity. The effect of bank finance on firm growth is more pronounced in non‐OECD than OECD countries, indicating the overwhelming importance of bank finance in countries with less developed institutions.

We employ 19,521 unique firms in 30 transition economies to investigate the relation between the origins of private firms and their financing patterns. In our sample, the private firms are either privatized former state-owned enterprises (SOEs) or ab initio (from the beginning) private firms. Our results show that privatized former SOEs finance a higher proportion of their fixed assets from bank finance and supplier credit, while ab initio private firms rely more on informal finance. We argue that privatized former SOEs continue to benefit from the political and financial connections established during their SOE era. We further document that financial institution development affects the financing patterns of these two groups differently. In our sample countries, financial institution advancement benefits privatized SOEs more than it benefits ab initio private firms.

This paper studies the effects of voluntary accounting information disclosure through auditing on firm access to finance, exposure to corruption, and sales growth. Relying on a data set of more than 70,000 firms in 121 countries, the analysis finds that disclosure can be a double-edged sword. On the one hand, audited firms exhibit a slightly lower level of financial constraints than unaudited firms. On the other hand, audited firms face a significantly higher level of corruption obstacles. The net effects of voluntary information disclosure on firm growth are negative, which can largely be explained by the fact that most of the countries in the sample are developing countries where institutions are weak. The beneficial effect of disclosure increases as a country's property rights protection improves. The qualitative results are robust to considerations of the endogeneity of auditing and to alternative measures of corruption and financial constraints. The findings reveal the dark side of voluntary information disclosure: exposing firms to government expropriation where institutions are weak.