Political Corruption and Corporate Risk-Taking

We use variation in corruption convictions across judicial districts the US to examine relationship between political and risk-taking of public firms. Firms headquartered regions with high levels have lower total risk idiosyncratic on average. Further analysis shows that tends encourage firms pursue risk-decreasing investments, riskiness their operations, decrease asset liquidity. While managerial ownership is intended align interests managers shareholders, presence appears undiversified risk-taking. Our evidence consistent agency theory asset-shielding argument discourages from taking risks expose expropriation by politicians, resulting suboptimal corporate policies.