Local corruption and corporate investment in an emerging market

Abstract

This paper examines how local corruption determines corporate investment in Vietnam where local corruption is more relevant to firms’ business activities than central corruption. We use the informal payment score extracted from the Vietnam Provincial Competitiveness Index (PCI) database as a proxy of local corruption. With a sample of 5,852 observations from firms listed in Vietnam, we find that local corruption increases investment expenditure through decreasing underinvestment and increasing overinvestment.