Theo Wayt of the Academic Times wrote this summary of the new research:
Companies headquartered in U.S. states with higher levels of political corruption pay out more to investors through dividends and stock buybacks, according to new research by three Canadian academics.
The paper, set to be published in the February 2021 issue of the Journal of Banking & Finance, appears to be the first to examine corruption and dividends on a state-by-state level. The researchers found that the dividend payouts at firms in high-corruption states is 4% higher than at those in low-corruption states — a statistically significant difference.
The research paper called “Political corruption and corporate payouts,” is to be published in the February 2021 issue of the Journal of Banking & Finance. Takdir Hossain and Lawrence Kryzanowski from Bronxville, New York’s Concordia University as well as Memorial University of Newfoundland’s Ashrafee Tanvir Hossain were the co-authors with Ashrafee Tanvir Hossain as the lead author. The paper’s abstract can be found here:
Firms headquartered in more corrupt US environments (states) provide higher payouts to their shareholders. Our results are robust to, for example propensity score matching, instrumental variable approach, headquarters relocations, quasi natural experiments using exogenous shocks, use of alternative measures of corruption and payouts, use of additional (possibly omitted) variables, and various alternative explanations based on additional channels and moderating factors. Our study finds that the use and marginal value of dividend payout as a shielding channel is affected by state-level corruption. Our study also adds geographic-based shielding as another important motivation for firms to make corporate payouts.
The article is much suggested reading by the Democracy Chronicles staff. Also visit Democracy Chronicles main sections on American Democracy and Money Politics or our articles on Worldwide Corruption.