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Financial Performance and The Legal Landscape: An International Study of Controversial Business Activities

Author

Listed:
  • Mazza, Paolo

    (IESEG School of Management)

  • Petitjean, Mikael

    (Université catholique de Louvain, LIDAM/LFIN, Belgium)

  • Tohlukov, Ariana

    (IESEG School of Management)

Abstract

In our decade-long international study of controversial publicly traded companies in tobacco, alcohol, and gambling industries, we find that their performance is distinctly influenced by the legal landscape compared to their non-controversial peers. Not only controversial firms do not outperform their non-controversial peers when the determinants of the legal landscape are accounted for, but there is also evidence that controversial firm performance is sensitive to specific aspects of the legal landscape, some of them helping them thrive while others penalizing them. A stricter rule of law and regulation quality negatively affect them. Their stock performance improves in environments with widespread bribery, patronage, and embezzlement. Additionally, enhanced business freedom and property rights protection significantly boost their performance, a benefit not observed in non-controversial firms.

Suggested Citation

  • Mazza, Paolo & Petitjean, Mikael & Tohlukov, Ariana, 2025. "Financial Performance and The Legal Landscape: An International Study of Controversial Business Activities," LIDAM Reprints LFIN 2025004, Université catholique de Louvain, Louvain Finance (LFIN).
    • Handle: RePEc:ajf:louvlr:2025004
    DOI: https://doi.org/10.22381/emfm19220244
    Note: In: Economics, Management, and Financial Markets, 2024, vol. 19(2), p. 60-86
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    Keywords

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    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • K20 - Law and Economics - - Regulation and Business Law - - - General

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