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Profitability of politically corrupt firms: Evidence from Romania

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  • Park, SeHyun

Abstract

Extending the twin-agency problem model, this paper shows that political corruption affects firms by empowering the controlling shareholders and thereby intensifying agency conflicts within selected firms instead of simple political extractions. The fact that controlling shareholders of politically corrupt firms divert more resources from their firms explains the inferior accounting performance despite the well-documented benefits of political connections. Moreover, a higher degree of diversion does not result in a value discount due to the increased value of control. These are demonstrated by evidence from a unique series of political events in Romania in 2015.

Suggested Citation

  • Park, SeHyun, 2023. "Profitability of politically corrupt firms: Evidence from Romania," Emerging Markets Review, Elsevier, vol. 54(C).
    • Handle: RePEc:eee:ememar:v:54:y:2023:i:c:s156601412200067x
    DOI: 10.1016/j.ememar.2022.100950
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    More about this item

    Keywords

    Political corruption; Political connection; Agency conflict; Overinvestment; Romania;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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