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 drivers. Our empirical results indicate that at the firm level, factors such as visibility, governance and shareholding play a significant role in affecting a firm’s corruption risk. These results hold even after controlling for country level drivers such as institutional quality, cultural and economic factors. 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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