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Economic uncertainty and corruption: Evidence from public and private firms

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  • Afzali, Mansoor
  • Ҫolak, Gönül
  • Fu, Mengchuan

Abstract

We study the influence of policy uncertainty on the moral behavior of firms. When facing uncertainty, managers perceive various socioeconomic obstacles as more severe and disruptive to their business. Using data from policy uncertainty spouts in 93 countries, we document that some firms engage in norm-deviant behavior by cheating on taxes and paying more bribes. While private firms prefer to cheat on taxes, public firms choose bribery as a favorite tool to “grease the wheels” during periods of uncertainty. Strong social capital (local trust and religiosity) breaks this link between uncertainty and corruption.

Suggested Citation

  • Afzali, Mansoor & Ҫolak, Gönül & Fu, Mengchuan, 2021. "Economic uncertainty and corruption: Evidence from public and private firms," Journal of Financial Stability, Elsevier, vol. 57(C).
    • Handle: RePEc:eee:finsta:v:57:y:2021:i:c:s1572308921000954
    DOI: 10.1016/j.jfs.2021.100936
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    Cited by:

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    5. Iorio, Roberto & Segnana, Maria Luigia, 2023. "Exploring the link between corruption and innovation: the moderating role of institutional context and competitive pressure," CELPE Discussion Papers 165, CELPE - CEnter for Labor and Political Economics, University of Salerno, Italy.
    6. Maria Ghani & Usman Ghani, 2024. "Economic Policy Uncertainty and Emerging Stock Market Volatility," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 31(1), pages 165-181, March.

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    More about this item

    Keywords

    Economic policy uncertainty; Private firms; Corruption; Bribery; Cheating on taxes; Trust; Religiosity;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • F30 - International Economics - - International Finance - - - General
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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