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Corruption and International Valuation: Does Virtue Pay?

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

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.

Suggested Citation

  • Lee, Charles M.C. & Ng, David T.C., 2002. "Corruption and International Valuation: Does Virtue Pay?," Working Papers 127288, Cornell University, Department of Applied Economics and Management.
  • Handle: RePEc:ags:cudawp:127288
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    Citations

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    Cited by:

    1. Shang-Jin Wei & R. G Gelos, 2002. "Transparency and International Investor Behavior," IMF Working Papers 02/174, International Monetary Fund.
    2. Wisniewski, Tomasz Piotr, 2016. "Is there a link between politics and stock returns? A literature survey," International Review of Financial Analysis, Elsevier, vol. 47(C), pages 15-23.
    3. 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.
    4. 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.
    5. repec:gam:jsusta:v:9:y:2017:i:10:p:1799-:d:114094 is not listed on IDEAS
    6. Jochem Axel, 2010. "International Financial Competitiveness and Incentives to Foreign Direct Investment," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 230(1), pages 42-58, February.
    7. Mehmet Balcilar & Riza Demirer & Rangan Gupta, 2017. "Do Sustainable Stocks Offer Diversification Benefits for Conventional Portfolios? An Empirical Analysis of Risk Spillovers and Dynamic Correlations," Sustainability, MDPI, Open Access Journal, vol. 9(10), pages 1-18, October.
    8. Kim, Huong Trang & Papanastassiou, Marina & Nguyen, Quang, 2017. "Multinationals and the impact of corruption on financial derivatives use and firm value: Evidence from East Asia," Journal of Multinational Financial Management, Elsevier, vol. 39(C), pages 39-59.

    More about this item

    Keywords

    Risk and Uncertainty;

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G3 - Financial Economics - - Corporate Finance and Governance

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