Corruption, cash holdings and firm performance: empirical evidence from an emerging market

Abstract

PurposeThis 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/approachThe 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.FindingsThe 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/implicationsThis 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 implicationsThe 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/valueThe 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.

Could the simultaneous persistence of greater cash holdings and interest‐bearing debts affect stock price crash risk?

“…Trade-off theory (Donald & Jerry, 1994), a simultaneous increase in cash holdings and debts can be a rational choice. Increasing financial leverage can have a governance effect when a firm has a high free cash flow; conversely, the firm will increase its cash holdings because excessive financial leverage may make financial crises more costly, which is further validated by Magerakis et al (2015). Signalling theory (Ross, 1977) suggests that an increase in a firm's debt sends a positive signal of sound investment opportunities and solvency.…”

The Influence of Corporate Liquidity, Networking Capital on Cash Holdings in Iraqi Islamic Banks

“…There is also evidence that other variables, such as corporate liquidity and networking capital, are the primary determinants of cash holdings (Hussain et al, 2022;Wildiany et al, 2022). Investors and financial experts pay close attention to cash holdings since they play an essential role in the development and survival of the company (Magerakis et al, 2015).…”

Corporate tax avoidance under economic policy uncertainty. Does the quality of institutional governance matter?

“…Our initial sample consists of 315,070 firm-year observations of all firms in the ICAP database from the fiscal years 2015 to 2021. Following previous studies (e.g., Magerakis and Tzelepis, 2023;Chen et al, 2022), we exclude firm-year observations with negative total assets, sales, and income tax. 4 Additionally, we eliminate observations associated with utilities, financial, insurance, and real estate firms because these industries are subject to different regulatory and reporting requirements 5 .…”

“…Furthermore, the country's already fragile institutional framework has deteriorated further under austerity measures, undermining essential support structures for businesses (Magerakis and Tzelepis, 2023). These crises significantly impacted the performance of Greek firms (Georgopoulos and Glaister, 2018), the majority of which are small-and medium-sized, family owned, and non-listed entities with limited managerial resources (Mantzari et al, 2017), exposing them to political rent-seeking pressures.…”