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Journal of Financial Economics Vol. 143 No. 3 2022

Revealing corruption: Firm and worker level evidence from Brazil

Emanuele Colonnelli1,2; Spyridon Lagaras3; Jacopo Ponticelli4; Mounu Prem5; Margarita Tsoutsoura6

1 Center for Economic and Policy Research · 2 University of Chicago · 3 Katz Graduate School of Business, University of Pittsburgh, 3950 Roberto & Vera Clemente Drive, Pittsburgh, PA, 15260, USA · 4 Northwestern University · 5 Universidad del Rosario · 6 Cornell University

Abstract

We study how the disclosure of corrupt practices affects the growth of firms involved in illegal interactions with the government using randomized audits of public procurement in Brazil. On average, firms exposed by the anti-corruption program grow larger after the audits, despite experiencing a decrease in procurement contracts. We manually collect new data on the details of thousands of corruption cases, through which we uncover a large heterogeneity in our firm-level effects depending on the degree of involvement in corruption. Using investment-, loan-, and worker- level data, we show that the average exposed firms adapt to the loss of government contracts by changing their investment strategy. They increase capital investment and borrow more to finance such investment, while there is no change in their internal organization. We provide qualitative support to our results by conducting new face-to-face surveys with business owners of government-dependent firms.

DOI
10.1016/j.jfineco.2021.12.013
Volume
143
Issue
3
Pages
1097-1119
Language
en
Sources
bibtex:phds-export.bib crossref openalex

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