Assessing the Effects of Anticorruption Law on Entrepreneurial Finance: Evidence from Latin America

Corruption normally causes distrust among investors and can negatively affect investments. Particularly in Latin America, decline of investments is one of the most significant problems. In such a context, anti-corruption laws can both fight corruption and promote business, restoring investors' trust. In this article, we ask whether the introduction of an anti-corruption framework affecting both the public and private spheres is able to increase investors' confidence in a new form of investment, that is, equity crowdfunding. By using a unique database, with combined information from different platforms in Brazil, Chile and Mexico, we study the population of 492 projects between 2013 and 2017. Implementing a set of linear probability regressions, we find that the new Mexican anti-corruption law has increased the probability of success of equity crowdfunding projects in this country, compared to Brazilian and Chilean projects, suggesting the existence of a causal relation between anti-corruption rules and investments in a highly perceived corrupt environment further characterised by a low level of investor protection.

Automated summary

Corruption can lead to distrust among investors and negatively impact investments, especially in Latin America. This study shows that the new anti-corruption law in Mexico has increased the success probability of equity crowdfunding projects in the country, indicating a causal relation between anti-corruption rules and investments in a corrupt environment with low investor protection.