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Corruption and International Valuation: Does Virtue Pay?

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  • Lee, Charles M.C.
  • Ng, David T.C.
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Abstract

Using firm-level data from 46 countries, we investigate the relation between corruption – the misuse of public office for private gains – and international corporate values. Our analysis shows that firms from more (less) corrupt countries trade at significantly lower (higher) market multiples. This result is robust to the inclusion of many control variables suggested by valuation theory. On average, an increase in the corruption level from that of Singapore to that of Mexico corresponds to a decrease of 18.1 in the PE ratio, and a decrease of 1.17 in the PB ratio. We conclude that corruption has significant economic consequences for shareholder value.

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Bibliographic Info

Paper provided by Cornell University, Department of Applied Economics and Management in its series Working Papers with number 127288.

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Date of creation: Jun 2002
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Handle: RePEc:ags:cudawp:127288

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Keywords: Risk and Uncertainty;

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Cited by:
  1. Chua, Choong Tze & Eun, Cheol S. & Lai, Sandy, 2007. "Corporate valuation around the world: The effects of governance, growth, and openness," Journal of Banking & Finance, Elsevier, vol. 31(1), pages 35-56, January.
  2. Mellati, Ali, 2008. "Uncertainty and investment in private sector: An analytical argument and a review of the economy of Iran," MPRA Paper 26655, University Library of Munich, Germany.
  3. Axel Jochem, 2010. "International Financial Competitiveness and Incentives to Foreign Direct Investment," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 230(1), pages 42-58, February.
  4. Shang-Jin Wei & Gaston Gelos, 2002. "Transparency and International Investor Behavior," IMF Working Papers 02/174, International Monetary Fund.

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