Does it pay to bribe? : evidence from corruption cases


Student thesis: Master's Thesis

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  • Hui GE

Related Research Unit(s)


Awarding Institution
  • Aristotelis STOURAITIS (Supervisor)
Award date15 Feb 2007


This dissertation studies in detail how corruption is carried out in practice, and to what extent firms paying bribes can benefit from such political rent seeking activities. Based on 142 corruption cases publicized by the media during the period 1990 to 2005, I identify a set of publicly traded companies which were involved in bribing local or foreign bureaucrats and corrupt bureaucrats from 46 countries. Typically, the bribes paid are related to some specific economic favors, such as winning a government contract, obtaining a business license or receiving preferential treatment on debt financing or taxation. Using an event study approach, I investigate the valuation effect of such specific events. I find that firms involved in corruption cases experienced significant excess return around the announcement of such events. However, despite these significant short-term benefits, the long-term performance of the bribe-paying firms is mixed. Compared with their non-bribing matching peers, the bribing firms overperform in terms of stock return and market-to-book equity in the year that specific government favors were extended to them in exchange for bribes. Nevertheless, these firms have poorer operating performance both prior to and posterior to the bribe incidents. Moreover, they have higher leverage ratios during the same period. This evidence indicates that corruption, by driving benefits to relatively poorly performing firms, can distort the efficiency of resource allocation, thus imposes large costs on the whole economy. Furthermore, I investigate several firm and country specific factors that may influence the firm’s benefits from bribing bureaucrats. I find that the benefits from corruption activities are higher for large firms and firms with better prior performance. Interestingly, I also find that the size of the benefits tends to be significantly related to the law origins of the bribe-payer’s home country and the corresponding bribe-taking country. Firms located in common law countries appear to benefit, while the benefits also tend to be higher when these firms offer bribes to bureaucrats in non-common law countries. Moreover, there is some evidence that the degree of regulatory burden on business and the corruption level in the country of the bribe taker are positively associated with the firm’s short-term benefits. Overall, the evidence from this study provides support for prior arguments that country institutional factors play an important role in shaping firms’ behaviors.

    Research areas

  • Corrupt practices, Corporations, Case studies