TY  - JOUR
AU  - Cai,Hongbin
AU  - Fang,Hanming
AU  - Xu,Lixin Colin
TI  - Eat, Drink, Firms and Government: An Investigation of Corruption from Entertainment and Travel Costs of Chinese Firms
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11592
PY  - 2005
Y2  - September 2005
UR  - http://www.nber.org/papers/w11592
L1  - http://www.nber.org/papers/w11592.pdf
N1  - Author contact info:
Hongbin Cai
Guanghua School of Management
Peking University
Beijing 100871
China
E-Mail: hbcai@gsm.pku.edu.cn

Hanming Fang
Department of Economics
University of Pennsylvania
3718 Locust Walk
Philadelphia, PA 19104
Tel: 215-898-7767
Fax: 215-573-2057
E-Mail: hanming.fang@econ.upenn.edu

Lixin Colin Xu
MC 3-420, World Bank
1818 H Street, N.W.
Washington, DC 20433
E-Mail: lxu1@worldbank.org
AB  - Entertainment and Travel Costs (ETC) is a standard expenditure item for Chinese firms with an annual amount equal to about 20 percent of total wage bills. We use this objective accounting measure as a basis to analyze the composition of ETC and the effect of ETC on firm performance. We rely on the predictions from a simple but plausible model of managerial decision-making to identify components of ETC by examining how the total ETC responds to different environmental variables. In our empirical analysis we find strong evidence that firms. ETC consists of a mix that includes bribery to government officials both as %u201Cgrease money%u201D and %u201Cprotection money,%u201D expenditures to build relational capital with suppliers and clients, and managerial excesses. ETC overall has a significantly negative effect on firm performance, but its negative effect is much less pronounced for those firms located in cities with low quality government service, those who are subject to severe government expropriation, and those who do not have strong relationship with suppliers and clients. Our findings have important implications on how to effectively curb corruption.
ER  -