A University of Illinois Gies College of Business professor has calculated how much corruption in America costs the average corporation.
The study “Political Corruption and Firm Value in the U.S.: Do Rents and Monitoring Matter?” estimated that publicly-held companies lose a measure of value when they’re located in a jurisdiction known for politically-corrupt behavior.
“A one standard deviation increase in political corruption is associated with a $7.6 million reduction in firm value (about 4 percent) for the median firm in our sample,” the study found. “The economic magnitude of this result suggests that political corruption is an important determinant of firm value even in developed economies such as the U.S.”
Nerissa Brown, a professor of accountancy at Gies College of Business, conducted the study along with Jared Smith, Roger White and Chad Zutter.
“If you think of all of the fIrms in your portfolio and each firm, if their value is supposed to drop by $7.6 million, in aggregate it’s a pretty sizable amount of money,” Brown said.
Political corruption, Brown said, is more commonly seen as a characteristic of developing countries where bribes are commonplace, but federal data on corruption convictions show its prevalence in America.
“Thus ... it appears that corrupt acts, even when acknowledged as unethical, can be seen as ‘the way things are done’ and can readily become an unwritten rule of conducting business in certain areas within the U.S.,” the study said.
One-party rule, Brown said, often foments more opportunities for corruption.
“When party control in governments is divided, public officials face more intense monitoring from the opposing party, which in turn restricts corruption,” the report said. “In the same vein, prior studies argue that corruption is more likely to flourish when a single party is dominant, because there is limited scrutiny from opposing party officials.”
The study's measurements of corruption were split by federal court districts and convictions per capita from 1996 to 2013. Illinois’ Northern District, according to the report, had the 17th most corruption convictions per capita. Illinois’ Southern District was 18th and the Central District was 47th. Washington D.C, followed by Louisiana’s Eastern District, had the most corruption.
Brown said investigative reforms aren’t necessarily the way to solve the issue, but likely a good place to start.