Abstract
We examine how political corruption affects corporate investment. We find firms in more corrupt states invest less than firms in less corrupt states. Our results are robust to using alternative investment measures, alternative corruption measures, and different regression specifications. Further, we find that the negative effect of corruption became insignificant after the enactment of Dodd–Frank Whistleblower Provision. The impact of the Dodd–Frank Whistleblower Provision is stronger in states with higher corruption. Our findings suggest that political corruption hinders investment, but the changes in legal environments can help firms reduce the decline in investments in highly corrupt states.
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