Corruption and corporate risk-taking: evidence from emerging markets

Abstract

PurposeThis paper investigates the relationship between corruption and corporate risk-taking in emerging markets where corruption is considered as “public enemy number one.”Design/methodology/approachThe study measures corruption based on Corruption Control Index annually published by World Bank and examines how corruption affects corporate risk-taking in emerging markets covered in MSCI Emerging Market Index.FindingsWith a sample of 75,338 observations from 8,326 firms across 20 emerging stock markets during the period 2005–2016, the author finds that corruption negatively affects corporate risk-taking. Robustness checks with a reduced sample without China and India, alternatives of corruption measures, various measures of risk-taking and Generalized method of moments (GMM) estimator also show consistent results. Moreover, additional analysis shows that information disclosure mitigates the effect of corruption on risk-taking.Originality/valueThe extant literature implies that corruption may decrease corporate risk-taking behavior through two channels including operational cost and debt financing cost.