Eat, Drink, Firms, Government: An Investigation of Corruption from the Entertainment and Travel Costs of Chinese Firms

We propose entertainment and travel costs (ETC) expenditures as a measure of corruption in Chinese firms. These expenses are publicly reported in firms’ accounting books, and on average they amount to about 3 percent of a firm’s total value added. We find that ETC is a mix that includes grease money to obtain better government services, protection money to lower tax rates, managerial excesses, and normal business expenditures to build relational capital with suppliers and clients. Entertainment and travel costs overall have a significantly negative effect on firm productivity, but we also find that some components of ETC have substantial positive returns to firms.

[1]  P. Mauro.  Corruption and Growth , 1995 .

[2]  Aviv Nevo.  Measuring Market Power in the Ready-to-Eat Cereal Industry , 1998 .

[3]  A. Khwaja,et al.  Do Lenders Favor Politically Connected Firms? Rent Provision in an Emerging Financial Market , 2004 .

[4]  B. Olken.  Corruption and the costs of redistribution: Micro evidence from Indonesia , 2006 .

[5]  Paul R. Milgrom,et al.  Monotone Comparative Statics , 1994 .

[6]  Simon Johnson,et al.  Unbundling Institutions , 2003, Journal of Political Economy.

[7]  Norbert Herrmann,et al.  The Cane Mutiny: Managing a Graying Workforce , 2005 .

[8]  Robert Cull,et al.  Market Facilitation by Local Government and Firm Efficiency: Evidence from China , 2013 .

[9]  Jay Pan,et al.  The impact of body size on urban employment: Evidence from China , 2013 .

[10]  Brian P. Poi,et al.  Production Function Estimation in Stata using Inputs to Control for Unobservables , 2004 .

[11]  Rafael Di Tella,et al.  Rents, Competition, and Corruption , 1999 .

[12]  A. Pakes,et al.  The Dynamics of Productivity in the Telecommunications Equipment Industry , 1992 .

[13]  Benno Torgler,et al.  The Causes of Corruption: Evidence from China , 2010 .

[14]  Jakob Svensson,et al.  Are Corruption and Taxation Really Harmful to Growth? Firm-Level Evidence , 1999 .

[15]  Francis T. Lui,et al.  An Equilibrium Queuing Model of Bribery , 1985, Journal of Political Economy.

[16]  Zvi Griliches,et al.  Production Functions: The Search for Identification , 1995 .

[17]  Regulation and corporate corruption: new evidence from the telecom sector , 2012 .

[18]  Stephen P. DeWeerth,et al.  Winning Isn't Everything. , 1995 .

[19]  R. Stott,et al.  The World Bank , 2008, Annals of tropical medicine and parasitology.

[20]  W. H. Andrews.  Random Simultaneous Equations and the Theory of Production , 1944 .

[21]  S. Rose-Ackerman.  Corruption: A study in political economy , 1978 .

[22]  Qiao Liu,et al.  Does Competition Encourage Unethical Behavior? The Case of Corporate Profit Hiding in China , 2005 .

[23]  Sendhil Mullainathan,et al.  Obtaining a Driver's License in India: An Experimental Approach to Studying Corruption , 2007 .

[24]  Hanming Fang,et al.  Eat, Drink, Firms and Government: An Investigation of Corruption from Entertainment and Travel Costs of Chinese Firms , 2005 .

[25]  Benno Torgler,et al.  Corruption and Social Interaction: Evidence from China , 2011 .

[26]  Susan Rose-Ackerman,et al.  The challenge of poor governance and corruption , 2005 .

[27]  I. Png,et al.  Do Institutions Not Matter in China? Evidence from Manufacturing Enterprises , 2010 .

[28]  R. Di Tella,et al.  The Role of Wages and Auditing During a Crackdown on Corruption in the City of Buenos Aires , 2001 .

[29]  Daniel Treisman,et al.  The causes of corruption: a cross-national study , 2000 .

[30]  Robert Cull,et al.  Institutions, Ownership, and Finance: The Determinants of Profit Reinvestment Among Chinese Firms , 2005 .

[31]  S. Mullainathan,et al.  Do People Mean What They Say? Implications for Subjective Survey Data , 2001 .

[32]  Paul R. Milgrom,et al.  Envelope Theorems for Arbitrary Choice Sets , 2002 .

[33]  Zvi Griliches,et al.  Econometrics and Economic Theory in the 20th Century: Production Functions: The Search for Identification , 1995 .

[34]  J. Wooldridge.  On estimating firm-level production functions using proxy variables to control for unobservables , 2009 .

[35]  Brent R. Moulton.  An Illustration of a Pitfall in Estimating the Effects of Aggregate Variables on Micro Unit , 1990 .

[36]  Canice Prendergast.  Investigating Corruption , 1999 .

[37]  Richard Schmalensee,et al.  MEASURING MARKET POWER IN THE READY-TO-EAT CEREAL INDUSTRY BY AVIV NEVO , 2001 .

[38]  John McMillan,et al.  Why Do Firms Hide? Bribes and Unofficial Activity after Communism , 2000 .

[39]  S. Rose-Ackerman.  Global Crises, Global Solutions: Governance and corruption , 2004 .

[40]  P. Bardhan.  Corruption and Development: A Review of Issues , 1997 .