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Political corruption, Dodd–Frank whistleblowing, and debt financing

Author

Listed:
  • Du, Qingjie
  • Hasan, Iftekhar
  • Wang, Yang
  • Wei, K.C. John

Abstract

We investigate how a state's political corruption affects a resident firm's debt contracting and how a change in anti-corruption regulation alters the relation between corruption and loan contracting. Firms in more corrupt states are associated with significantly higher loan spreads and tighter loan covenants than firms in less corrupt states. Furthermore, the passage of the Dodd–Frank whistleblowing provision amplifies the conhcerns of banks about the detrimental impact of corruption due to the increased exposure of firms to whistleblowing threats. The detrimental impact of corruption is further amplified when a state has a higher level of whistleblowing involvement, when firms are located in more corrupt states or closer to the SEC office, and when the bank's state is less corrupt than the firm's state. In general, we document the externality of corruption in the debt financing of firms and the response of banks to changes in regulation.

Suggested Citation

  • Du, Qingjie & Hasan, Iftekhar & Wang, Yang & Wei, K.C. John, 2025. "Political corruption, Dodd–Frank whistleblowing, and debt financing," Journal of Corporate Finance, Elsevier, vol. 91(C).
    • Handle: RePEc:eee:corfin:v:91:y:2025:i:c:s0929119925000136
    DOI: 10.1016/j.jcorpfin.2025.102745
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    More about this item

    Keywords

    Corruption; Dodd–Frank; Whistleblowing; Bank loan cost; Loan covenants;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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