Document Type

Article

Article Version

Post-print

Publication Date

2-2022

Abstract

Using political corruption conviction data from the U.S. Department of Justice, we examine the impact of local corruption on firms’ debt maturity structure while exploring both demand-side and supply-side explanations. Our results support the demand-side story and indicate that firms in high corruption areas utilize less short-term debt to mitigate liquidity and refinancing risks. Consistent with this, we find the effect is more pronounced among firms with smaller size, lower asset redeployability, and higher volatility. Our findings remain robust to the inclusion of an array of controls expected to influence debt maturity preferences as well as time, industry, and state fixed effects. Moreover, a seemingly unrelated regression approach, instrumental variables regression, propensity score matching, placebo analyses, and alternative corruption measures corroborate our findings. Altogether, our results indicate that firms alter their debt maturity choices in response to local corruption to limit refinancing risk and the uncertainty created by corrupt government officials.

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© 2022 Elsevier B.V. All rights reserved.

The post-print version has been archived here with permission from the copyright holder under a CC BY-NC-ND license.

Publication Title

Journal of Financial Stability

Published Citation

Hassan, M. Kabir, Md Sydul Karim, and Steven E. Kozlowski. "Implications of public corruption for local firms: Evidence from corporate debt maturity." Journal of Financial Stability 58 (2022): 100975. https://doi.org/10.1016/j.jfs.2022.100975

DOI

10.1016/j.jfs.2022.100975

Peer Reviewed

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