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Corruption and International Valuation: Does Virtue Pay?

  • Charles, Lee
  • David, Ng

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/590/1/MPRA_paper_590.pdf
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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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