Corruption, cash holdings and firm performance: empirical evidence from an emerging market
Journal of Applied Accounting Research
ISSN: 0967-5426
Article publication date: 5 October 2022
Issue publication date: 4 May 2023
Abstract
Purpose
This 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/approach
The 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.
Findings
The 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/implications
This 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 implications
The 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/value
The 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.
Keywords
Acknowledgements
The authors thank the Editor Prof. Dr Othmar Lehner and the five anonymous reviewers for their constructive comments. The authors acknowledge the comments of participants at the 18th Hellenic Finance and Accounting Association Annual Conference. We owe sincere thanks to an anonymous referee, Prof. Yuanto Kusnadi, Prof. Gaia Melloni, and other participants at the 43rd European Accounting Association (EAA) Virtual Annual Congress (2021) for many useful comments and suggestions. The research work was supported by the Hellenic Foundation for Research and Innovation (HFRI) under the HFRI PhD Fellowship grant (Fellowship Number: 299). All remaining errors are our own.
Citation
Magerakis, E. and Tzelepis, D. (2023), "Corruption, cash holdings and firm performance: empirical evidence from an emerging market", Journal of Applied Accounting Research, Vol. 24 No. 3, pp. 483-507. https://doi.org/10.1108/JAAR-11-2021-0310
Publisher
:Emerald Publishing Limited
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