How Corruption and Government Dependency Affect Cash Holdings? A Cross-Sectional Study of Twenty Countries

Abstract

This study provides new evidence on impacts of corruption. Consistent with Smith (2016) and Caprio et al. (2013), operating in a corrupt country decreases cash balances in the sample of 10,265 firms from twenty countries. Adding to the prior literature, the study provides evidence that government dependent firms in corrupt countries hold even less cash than non-government dependent firms do. The finding holds especially with firms with real size below the sample average. The findings are robust to several additional tests.