The Agency Problem, Financial Performance and Corruption: Country, Industry and Firm Level Perspectives

14 Pages Posted: 24 Dec 2014

See all articles by Michael Donadelli

Michael Donadelli

Leibniz Institute for Financial Research SAFE

Marco Fasan

Ca Foscari University of Venice - Department of Management

Barbara Sveva Magnanelli

Luiss Guido Carli University

Date Written: Autumn‐Winter 2014

Abstract

This paper studies the relationship between the agency problem, financial performance and corruption from country, industry and firm level perspectives. First, we observe that companies operating in countries with a high level of corruption tend to display relatively low returns. Second, in an industry‐by‐industry context, we find that the negative relationship between corruption and average stock returns is stronger in specific industries, which we define as ‘corruption sensitive’. Third, at the firm level, we show that agency problems are exacerbated in corruption‐sensitive industries. Our study builds on the existing literature in three main areas. First, it proposes a novel macro‐based approach aimed at identifying corruption‐sensitive industries. Second, it provides evidence supporting that corruption exacerbates agency conflicts. Third, it provides evidence on the generalizability of standard corporate governance predictions to companies operating in corruption‐sensitive industries.

Keywords: corruption, financial performance, agency problem, industry

Suggested Citation

Donadelli, Michael and Fasan, Marco and Magnanelli, Barbara Sveva, The Agency Problem, Financial Performance and Corruption: Country, Industry and Firm Level Perspectives (Autumn‐Winter 2014). European Management Review, Vol. 11, Issue 3-4, pp. 259-272, 2014. Available at SSRN: https://ssrn.com/abstract=2542401 or http://dx.doi.org/10.1111/emre.12038

Michael Donadelli (Contact Author)

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Marco Fasan

Ca Foscari University of Venice - Department of Management ( email )

San Giobbe, Cannaregio 873
Venice, 30121
Italy

Barbara Sveva Magnanelli

Luiss Guido Carli University ( email )

Via O. Tommasini 1
Rome, Roma 00100
Italy

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