Public Corruption in the United States: Implications for Local Firms

Abstract

We study the relation between state-level public corruption in the United States and firm-value and firms' disclosure policies. Consistent with our hypotheses, firms have significantly lower value (Tobin’s q) and informational transparency in more corrupt areas. Local corruption has a less negative effect on industries that sell primarily to the government, suggesting a quid pro quo between these firms and public officials. Several tests address endogeneity concerns: for example, firms located in different states but close to state borders are affected by differences in state-level corruption, indicating legal jurisdiction matters despite similar local conditions. Received date: March 6, 2015; accepted date: December 7, 2015 by Editor Paolo Fulghieri.