This paper examines the interaction between the propensity to corrupt (PTC) and firm performance. Using a unique data set of Moscow traffic violations, I construct the PTC of every Muscovite with a driver׳s license. Next, I determine the PTC for the top management of 58,157 privately held firms. I find that a 1 standard deviation increase in management PTC corresponds to a 3.6% increase in income diversion and that firms with corrupt management significantly outperform their counterparts. This study contributes to the literature that characterizes corruption using objective (instead of perception-based) measures and provides evidence regarding the positive aspects of corruption at the firm level.

This paper examines the interaction between income diversion and firm performance. Using unique Russian banking transaction data, I identify 42,483 spacemen, fly‐by‐night firms created specifically for income diversion. Next, I build a direct measure of income diversion for 45,429 companies and show that it is negatively related to firm performance. I identify the main reason for the observed effect as managerial diversion rather than tax evasion per se. I further show that stricter tax enforcement can improve firm performance: a one standard deviation increase in tax enforcement corresponds to an increase in the annual revenue growth rate of 2.6%.

This paper examines the relation between the investment horizon of banks and their CEO compensation, and its consequences for risk and performance. We find that banks with short-term investment intensity pay more cash bonus, exhibit higher risk and perform more poorly than banks with longer-term investment intensity. This evidence is broadly consistent with the view that short-term means of compensation encouraged a short-term investment focus, which in turn led to both higher risk and resulted in poorer performance, culminating in the sub-prime crisis. The inverse risk-performance relation suggests pay schemes were incongruent with shareholders’ interest. Moreover, pay arrangements used in banks prior to the subprime crisis exposed banks to the ex-post settling up problem (the clawback problem).