Abstract
Anecdotal evidence indicates that corruption is rampant in the defence sector globally. Using a unique database on firm level corruption risk in the defence industry, we examine the role of country level and firm level antecedents. Among the country level factors we study are several measures of institutional quality, governance systems and legislative oversight, explicit mechanisms to control corruption and cultural factors such as power distance and uncertainty avoidance. Our empirical results confirm that these factors indeed influence firm level corruption risk. We also find that at the firm level, factors such as visibility, governance and shareholding play a significant role in affecting a firm’s corruption risk. The results of our study also show that the disclosure of corruption risk is associated with the mitigation of information asymmetry and consequent increase in firm level market liquidity.
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