Jayakody, Shashitha, Morelli, David A., Oberoi, Jaideep S (2023) Political uncertainty, corruption, and corporate cash holdings. Journal of Corporate Finance, 82 . Article Number 102447. ISSN 0929-1199. (doi:10.1016/j.jcorpfin.2023.102447) (KAR id:102225)
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Official URL: https://doi.org/10.1016/j.jcorpfin.2023.102447 |
Abstract
Exposure to political corruption and political uncertainty separately demands opposing risk management responses: to reduce cash to minimize expropriation and to increase cash to hedge policy risk. We study how local political corruption and political uncertainty interact in their impact on corporate cash holdings within the United States. We find robust evidence that firms located in states with higher corruption scores react to increases in local political uncertainty by increasing cash holdings more than those in less corrupt settings. This behavior suggests that firms in more corrupt settings find it expedient to raise cash to facilitate influence of officials in the face of local political risk. We find further support for this conclusion by showing that politically engaged firms respond to our measure of political risk by increasing cash and increasing spending on campaign contributions. Our findings point to a potential channel through which different jurisdictions experience the entrenchment and persistence of corruption.
Item Type: | Article |
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DOI/Identification number: | 10.1016/j.jcorpfin.2023.102447 |
Uncontrolled keywords: | Cash holdings, local corruption, influence, political risk |
Subjects: | H Social Sciences |
Divisions: | Divisions > Kent Business School - Division > Department of Accounting and Finance |
Funders: | University of Kent (https://ror.org/00xkeyj56) |
Depositing User: | David Morelli |
Date Deposited: | 26 Jul 2023 10:31 UTC |
Last Modified: | 11 Jan 2024 16:43 UTC |
Resource URI: | https://kar.kent.ac.uk/id/eprint/102225 (The current URI for this page, for reference purposes) |
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