The Real Costs of Washing Away Corruption: Evidence from Brazil’s Lava Jato Investigation
We investigate the economic impacts of one of the world's largest anti-corruption crackdowns, Brazil's Operação Lava Jato (Car Wash). Using a difference-in-differences analysis of unique, matched firm-bank data, we find sizable declines in employment and wage bills for investigated firms, alongside reduced access to credit. We also find adverse indirect effects through the bank credit channel, where highly exposed banks reduce credit to non-investigated firms, particularly for politically connected existing borrowers. Non-investigated firms exposed to the economic shock through their bank relationships suffer declines in wage bills and employment. The findings highlight the intricate economic implications of anti-corruption policies targeting large corporations.
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