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Predictable Corruption and Firm Investment: Evidence from a Natural Experiment and Survey of Cambodian Entrepreneurs

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  • Malesky, Edmund J.
  • Samphantharak, Krislert

Abstract

This paper utilizes a unique dataset of 500 firms in ten Cambodian provinces and a natural experiment to test a long-held convention in political economy that the predictability of a corruption is at least as important for firm investment decisions as the amount of bribes a firm must pay, provided the bribes are not prohibitively expensive. Our results suggest that this hypothesis is correct. Firms exposed to a shock to their bribe schedules by a change in governor invest significantly less in subsequent periods, as they wait for new information about their new chief executive. Furthermore, the amount of corruption (both measured by survey data and proxied by the number of commercial sex workers) is significantly lower in provinces with new governors. Our findings are robust to a battery of firm-level controls and province-level investment climate measures.

Suggested Citation

  • Malesky, Edmund J. & Samphantharak, Krislert, 2008. "Predictable Corruption and Firm Investment: Evidence from a Natural Experiment and Survey of Cambodian Entrepreneurs," Quarterly Journal of Political Science, now publishers, vol. 3(3), pages 227-267, October.
    • Handle: RePEc:now:jlqjps:100.00008013
    DOI: 10.1561/100.00008013
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    Cited by:

    1. Gulnaz Sharafutdinova & Jevgenijs Steinbuks, 2017. "Governors matter," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 25(3), pages 471-493, July.
    2. Ahmed, Faisal Z. & Greenleaf, Anne & Sacks, Audrey, 2014. "The Paradox of Export Growth in Areas of Weak Governance: The Case of the Ready Made Garment Sector in Bangladesh," World Development, Elsevier, vol. 56(C), pages 258-271.
    3. Neil McCulloch & Edmund Malesky, 2011. "Does better local governance improve district growth performance in Indonesia?," Working Paper Series 1711, Department of Economics, University of Sussex Business School.
    4. Tkachenko, Andrey & Esaulov, Daniil, 2020. "Autocratic governors in public procurement," European Journal of Political Economy, Elsevier, vol. 61(C).
    5. Benjamin A. Olken & Rohini Pande, 2012. "Corruption in Developing Countries," Annual Review of Economics, Annual Reviews, vol. 4(1), pages 479-509, July.
    6. Manuel Oechslin & Elias Steiner, 2022. "Statistical capacity and corrupt bureaucracies," The Review of International Organizations, Springer, vol. 17(1), pages 143-174, January.
    7. Duvanova, Dinissa, 2014. "Economic Regulations, Red Tape, and Bureaucratic Corruption in Post-Communist Economies," World Development, Elsevier, vol. 59(C), pages 298-312.
    8. Kubinec, Robert & Lee, Haillie Na-Kyung & Tomashevskiy, Andrey, 2021. "Why Corporate Political Connections Can Impede Investment," SocArXiv uks25, Center for Open Science.
    9. Addis G. Birhanu & Alfonso Gambardella & Giovanni Valentini, 2016. "Bribery and investment: Firm-level evidence from Africa and Latin America," Strategic Management Journal, Wiley Blackwell, vol. 37(9), pages 1865-1877, September.
    10. Danqing Wang & Zhitao Zhu & Shuo Chen & Xiaowei Rose Luo, 2021. "Running out of steam? A political incentive perspective of FDI inflows in China," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 52(4), pages 692-717, June.
    11. John S. Earle & Scott Gehlbach, 2015. "The Productivity Consequences of Political Turnover: Firm‐Level Evidence from Ukraine's Orange Revolution," American Journal of Political Science, John Wiley & Sons, vol. 59(3), pages 708-723, July.
    12. Ruohan Wu, 2019. "Firm Development and Bribery: An Empirical Study from Latin America," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 47(1), pages 53-64, March.
    13. Nguyen, Nam H. & Phan, Hieu V. & Simpson, Thuy, 2020. "Political corruption and mergers and acquisitions," Journal of Corporate Finance, Elsevier, vol. 65(C).
    14. Andrey Tkachenko & Daniil Esaulov, 2018. "The Role Of Governors In Public Procurement," HSE Working papers WP BRP 19/PSP/2018, National Research University Higher School of Economics.
    15. Laajaj, Rachid & Eslava, Marcela & Kinda, Tidiane, 2023. "The costs of bureaucracy and corruption at customs: Evidence from the computerization of imports in Colombia," Journal of Public Economics, Elsevier, vol. 225(C).
    16. Timothy Frye & Andrei Yakovlev, 2015. "Elections and Property Rights: Evidence from a Natural Experiment in Russia," HSE Working papers WP BRP 29/PS/2015, National Research University Higher School of Economics.
    17. Manabu Nose, 2018. "Road to Industrialized Africa: Role of Efficient Factor Market in Firm Growth," IMF Working Papers 2018/184, International Monetary Fund.
    18. Grilli, Luca & Murtinu, Samuele, 2018. "Selective subsidies, entrepreneurial founders' human capital, and access to R&D alliances," Research Policy, Elsevier, vol. 47(10), pages 1945-1963.
    19. Castellaneta, Francesco & Conti, Raffaele & Veloso, Francisco M. & Kemeny, Carlos A., 2016. "The effect of trade secret legal protection on venture capital investments: Evidence from the inevitable disclosure doctrine," Journal of Business Venturing, Elsevier, vol. 31(5), pages 524-541.
    20. Eric C. C. Chang, 2020. "Corruption predictability and corruption voting in Asian democracies," Public Choice, Springer, vol. 184(3), pages 307-326, September.
    21. Jensen, Nathan M & Rahman, Aminur, 2011. "The silence of corruption : identifying underreporting of business corruption through randomized response techniques," Policy Research Working Paper Series 5696, The World Bank.
    22. Huang, Chia-Wei & Lin, Chih-Yen & Lin, Wen-Chun & Tsai, Yun-Ching, 2022. "Corruption transfer and acquisition performance," Journal of Banking & Finance, Elsevier, vol. 135(C).
    23. Hanousek, Jan & Shamshur, Anastasiya & Tresl, Jiri, 2017. "To bribe or not to bribe? Corruption uncertainty and corporate practices," CEPR Discussion Papers 12094, C.E.P.R. Discussion Papers.

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