Eat, Drink, Firms, Government: An Investigation of Corruption from Entertainment and Travel Costs of Chinese Firms
23 Pages Posted: 17 Jul 2010
Date Written: July 16, 2010
Abstract
We propose "Entertainment and Travel Costs" (ETC) expenditures as a measure of corruption in Chinese firms. These expenses are publicly reported in firms' accounting books, and on average they amount to about 3% of firms' total value added. We find that ETC is a mix that includes "grease money" to get better government services, "protection money" to lower tax rates, managerial excesses, and normal business expenditures to build relational capital with suppliers and clients. ETC overall has a significantly negative effect on firm productivity, but we also find that some components of the ETC have substantial positive returns to the firms.
Keywords: Corruption, Government Expropriation, Corporate Governance
JEL Classification: L2, O1, H2
Suggested Citation: Suggested Citation
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