Corruption, cash holdings and firm performance: empirical evidence from an emerging market

Abstract

PurposeThis paper aims to examine the impact of corruption on firm performance considering the interventional role of cash policy in the emerging market of Greece.Design/methodology/approachThe current study utilizes a sample of 142,079 firm-year observations for the period 2006–2014. Descriptive statistics, multiple regression analyses and robustness checks are used to test the study's hypotheses.FindingsThe results reveal that firm performance is positively related to the control of institutional corruption, implying that firms perform better when operating in a low-corruption environment. All other things being equal, we also find that firm cash holding strengthens the positive association between control of corruption and corporate financial performance.Research limitations/implicationsThis research paper takes a more holistic approach by considering institutional factors in conjunction with corporate financial policies and outcomes. In a pervasive corrupt environment, the article illustrates how firm-level mechanisms can preclude political rent-seeking to improve corporate performance. The study's main limitation is that it focuses exclusively on a single country setting, based on the extreme-critical case's logic.Practical implicationsThe findings might be useful for business executives and regulators seeking a better understanding of the planning and implementation of firms' asset allocation strategies and anti-corruption policies.Originality/valueThe study augments the relevant literature on the firm-level implications of corruption by providing empirical evidence for the interventional role of cash management in the relation between corruption and firm performance, in the context of an emerging economy.