Corruption and corporate investment efficiency around the world

Abstract

Purpose: The paper investigates the effect of corruption on corporate investment efficiency around the world. Design/methodology/approach: The sample includes 218,350 observations from 30,074 firms across 42 countries. The authors measure corruption based on the Corruption Perception Index (CPI) from Transparency International, Corruption Control Index (CCI) from the World Bank and Corruption Index from the International Country Risk Guide. Findings: The authors find that corruption is negatively related to investment efficiency. The robustness checks with different measures of corporate investment and alternative regression approaches show consistent findings. Moreover, the authors also find that the effect of corruption is stronger (weaker) in strong (weak) shareholder protection countries. Originality/value: The paper has two important contributions to the literature. First, it shows that corruption environment is also a determinant of corporate investment efficiency. Second, legal protection of shareholders can mitigate the negative effect of corruption on corporate investment efficiency.