Corruption versus societal trust—New evidence from Poland's limited liability companies

Date01 October 2019
Published date01 October 2019
AuthorAnna P. Malinowska
Corruption versus societal trustNew evidence from Poland's
limited liability companies
Anna P. Malinowska
CASE Center for Social and Economic
Research, Warsaw, Poland
Anna P. Malinowska, CASE Center for
Social and Economic Research, Al. Jana
Pawła II 61B, Warsaw, Poland.
Over the last decades, institutions, especially informal institutions, have become
important determinants of economic dynamics, both in the microscale and macro-
scale. Even though, two of the most important social phenomena, corruption and
societal trust, have remained under-researched vis-à-vis corporate financial poli-
cies. 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 20072016, 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 impor-
tant 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.
corporate policy, corruption, institutions, liquidity, Poland, trust
G32; G30; P37; P14
In a highly interconnected world of today, institutional fac-
tors have become significant determinants of economic
dynamics, both at the macrolevel and microlevel. Among
them, informal institutions, such as corruption and trust,
while pervasive in the real world, have remained under-
researched in academic studies. Some studies dealt with the
impact of the former on macroeconomic issues, such as for-
eign direct investment (FDI) and economic growth
(e.g., Mauro, 1995), yet empirical investigations regarding
the influence of either corruption or trust on corporate policy
remain fewer (Asiedu & Freeman, 2009; Malinowska, in
press). This is despite the fact that firm financial decisions
constitute channels via which companies evade rent seeking
while external environment, such as national regulatory
frameworks, provide extortive tools for State officials to
influence private agents (McChesney, 1987). In such
circumstances, there emerge two behavior patterns followed
by companies: firms either resorted to transparency
Received: 7 June 2019 Revised: 18 June 2019 Accepted: 20 June 2019
DOI: 10.1002/jcaf.22405
J Corp Acct Fin. 2019;30:8598. © 2019 Wiley Periodicals, Inc. 85

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