Corruption and International Valuation: Does Virtue Pay?
Charles M.C. Lee
Stanford University - Graduate School of Business
September 25, 2006
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.
Number of Pages in PDF File: 33
Keywords: Corruption, International Valuation
JEL Classification: F30working papers series
Date posted: October 3, 2006
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