Revealing Corruption: Firm and Worker Level Evidence from Brazil

75 Pages Posted: 9 Mar 2017 Last revised: 20 Dec 2021

See all articles by Emanuele Colonnelli

Emanuele Colonnelli

University of Chicago - Booth School of Business

Spyridon Lagaras

University of Pittsburgh, Katz Graduate Business School

Jacopo Ponticelli

Northwestern University - Kellogg School of Management; NBER

Mounu Prem

Universidad del Rosario

Margarita Tsoutsoura

Cornell University; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

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Date Written: November 21, 2021

Abstract

We study how the disclosure of corrupt practices affects the growth of firms involved in illegal interactions with the government using randomized audits of public procurement in Brazil. On average, firms exposed by the anti-corruption program grow larger after the audits, despite experiencing a decrease in procurement contracts. We manually collect new data on the details of thousands of corruption cases, through which we uncover a large heterogeneity in our firm-level effects depending on the degree of involvement in corruption. Using investment-, loan-, and worker- level data, we show that the average exposed firms adapt to the loss of government contracts by changing their investment strategy. They increase capital investment and borrow more to finance such investment, while there is no change in their internal organization. We provide qualitative support to our results by conducting new face-to-face surveys with business owners of government-dependent firms.

Keywords: Corporate Misconduct, Public Procurement, Firm Growth

JEL Classification: D3, O1, D73, H57, D22

Suggested Citation

Colonnelli, Emanuele and Lagaras, Spyridon and Ponticelli, Jacopo and Prem, Mounu and Tsoutsoura, Margarita, Revealing Corruption: Firm and Worker Level Evidence from Brazil (November 21, 2021). Chicago Booth Research Paper Forthcoming, Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2929625 or http://dx.doi.org/10.2139/ssrn.2929625

Emanuele Colonnelli

University of Chicago - Booth School of Business ( email )

HOME PAGE: http://emanuelecolonnelli.com

Spyridon Lagaras

University of Pittsburgh, Katz Graduate Business School ( email )

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Jacopo Ponticelli (Contact Author)

Northwestern University - Kellogg School of Management ( email )

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United States

HOME PAGE: http://www.kellogg.northwestern.edu/faculty/ponticelli/index.html

NBER ( email )

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Mounu Prem

Universidad del Rosario ( email )

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Bogota
Colombia

Margarita Tsoutsoura

Cornell University ( email )

Ithaca, NY 14853
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
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Belgium

National Bureau of Economic Research (NBER) ( email )

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