Abstract
Abstract. This study demonstrates the importance of government corruption in shaping corporate finance patterns across countries. Corruption contributes to a more prevalent and higher degree of corporate equity ownership concentration and more reliance on bank financing in raising external finance. It argues that corporate governance under corrupt governments is particularly poor. Firm management, taking advantage of political capital acquired through bribery, is especially powerful in expropriating from outside investors. Ownership concentration and reliance on bank financing are means of mitigating the corporate governance problem under a corrupt government.
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