Local corruption and corporate cash holdings: the interactive effect of the anti-corruption campaign in Vietnam

Abstract

Despite growing interest, the existing literature on corruption and corporate cash holdings remains inconclusive. Using a sample of 1,172 listed firms in Vietnam over the period 2006–2022, this study contributes to this stream of literature by investigating the relationship between local corruption and corporate cash holdings and the conditioning effects of anti-corruption efforts including the ongoing anti-corruption campaign. We find that firms appear to hold more cash in response to higher local corruption, supporting the bribery hypothesis. Local corruption also exacerbates the problem of corporate excessive cash holdings. The relationship between local corruption and corporate cash holdings in Vietnam is linear and persistent, which contrasts with some non-linear cross-country evidence provided by previous studies. Moreover, the intensity of anti-corruption efforts reduces firms’ incentives to hold more cash for bribery purposes. Similarly, in more corrupt regions, corporate cash holdings decrease during the period of the anti-corruption campaign.