Document Type

Article

Publication Date

2-2021

Abstract

This paper examines the impact of financial reporting practices on corruption obstacles for about 150,000 firms across 143 mostly developing countries from 2006 to 2019. We document a strong positive relationship between the production of audited financial statements (AFS) and corruption obstacles (CO) faced by the firm. We argue that in a corrupt business environment, rent-seeking bureaucrats use the credible financial information to optimize their bribe demands. Our baseline results remain robust after addressing endogeneity concerns. We further show that country-level institutional quality has a moderating effect on the AFS-CO relation. The evidence from surveying entrepreneurs also provides qualitative support for our empirical findings. Our study sheds light on a previously under-explored adverse consequence of transparency - exposure to corrupt bureaucrats where institutions are weak.

Comments

Original published version available at https://doi.org/10.1016/j.jcorpfin.2020.101829

Publication Title

Journal of Corporate Finance

DOI

10.1016/j.jcorpfin.2020.101829

Included in

Finance Commons

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