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Corruption and International Valuation: Does Virtue Pay?

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  • Charles, Lee
  • David, Ng

Abstract

Using firm-level data from 44 countries, we investigate the relation between corruption and international corporate values. Our analysis shows that firms from more corrupt countries trade at significantly lower market multiples. The effect is both economically and statistically significant. Furthermore, using a two-stage estimation procedure, we show that corruption impacts firm value primarily through lower expected future cash flows, most directly captured by firms’ profitability forecasts. Collectively, our evidence shows corruption has significant economic consequences for shareholder value.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 590.

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Date of creation: Nov 2002
Date of revision: Oct 2006
Handle: RePEc:pra:mprapa:590

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Keywords: corruption; international valuation; market multiple;

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Citations

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Cited by:
  1. 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.
  2. 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.
  3. 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.
  4. R. Gaston Gelos & Shang-Jin Wei, 2002. "Transparency and International Investor Behavior," NBER Working Papers 9260, National Bureau of Economic Research, Inc.

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