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Corruption and International Valuation: Does Virtue Pay?

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Author Info
Charles, Lee
David, Ng

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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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File URL: http://mpra.ub.uni-muenchen.de/590/
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Publisher 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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Related research
Keywords: corruption; international valuation; market multiple;

Find related papers by JEL classification:
G00 - Financial Economics - - General - - - General
G3 - Financial Economics - - Corporate Finance and Governance

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Gaston R. Gelos & Shang-Jin Wei, 2002. "Transparency and International Investor Behavior," IMF Working Papers 02/174, International Monetary Fund. [Downloadable!]
    Other versions:
  2. Durnev, Art & Fauver, Larry, 2008. "Stealing from Thieves: Firm Governance and Performance when States are Predatory," CEI Working Paper Series 2008-12, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
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