Corruption and cash policy: evidence from a natural experiment

This paper studies the effects of a 2016 U.S. Supreme Court decision that made it harder for prosecutors to bring corruption cases against public officeholders. We find that regulated firms headquartered in high-corruption areas, which are most vulnerable to political corruption, increased cash reserves in the years after the decision. We interpret this as suggestive evidence that the exogenous shock to anticorruption enforcement led to an increase in bribery for affected firms, because cash is a liquid and anonymous asset often used for illicit payments. The affected firms experienced negative abnormal returns near the decision, indicating that reduced anticorruption enforcement decreased firm value. Consistent with the bribery hypothesis, regulated firms in high-corruption states became less likely to be penalized by government agencies after the decision.