Premium
Corruption versus societal trust—New evidence from Poland's limited liability companies
Author(s) -
Malinowska Anna P.
Publication year - 2019
Publication title -
journal of corporate accounting and finance
Language(s) - English
Resource type - Journals
eISSN - 1097-0053
pISSN - 1044-8136
DOI - 10.1002/jcaf.22405
Subject(s) - transparency (behavior) , endogeneity , cash flow , business , cash , corporate governance , operating cash flow , market liquidity , cash flow forecasting , finance , language change , accounting , cash management , economics , monetary economics , art , literature , political science , law , econometrics
Abstract Over the last decades, institutions, especially informal institutions, have become important determinants of economic dynamics, both in the microscale and macroscale. Even though, two of the most important social phenomena, corruption and societal trust, have remained under‐researched vis‐à‐vis corporate financial policies. This study, presenting novel and rigorous econometric evidence, aims to fill this gap. The results, obtained after controlling for endogeneity via the application of a two‐step system general method of moment for dynamic panel data, for 2,665 Polish limited liabilities companies active in the period 2007–2016, highlighted several important issues. First, as regards corruption appeared to negatively impact firm cash balances and flows. Indeed, companies decreased their cash flows and cash balances to shelter themselves from expropriation and additionally actively engaged in transparency management to make their financial situation more opaque and less attractive in terms of extortions. Second, societal trust emerged as important and increased firm cash balances and cash flows. What is more, national accounting standards as well as access to external financing, the banking system specifically, boosted firm cash balances and cash flows. We argue that all the three factors increased firm‐level transparency.