The Value of Offshore Secrets – Evidence from the Panama Papers

44 Pages Posted: 28 Apr 2016 Last revised: 12 Apr 2017

James O'Donovan

INSEAD

Hannes F. Wagner

Bocconi University - Department of Finance; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research

Stefan Zeume

University of Michigan, Stephen M. Ross School of Business

Date Written: April 19, 2016

Abstract

We use the data leak of the Panama Papers on April 3, 2016 to study whether and how the use of secret offshore vehicles affects firm value. The data provide insights into the operations of more than 214,000 offshore vehicles incorporated in tax havens by the Panama-based law firm Mossack Fonseca & Co. We find that the leak erases US$135 billion in market capitalization among 397 public firms that we trace as users of offshore vehicles exposed in the Panama Papers. Firm value declines only when offshore activities are previously secret. In addition, we show that the leak reduces the net benefits of using secret offshore vehicles to bypass anti-bribery regulations and evade taxes. Taken together, firms use secret offshore vehicles for value-enhancing but potentially illegal activities that go beyond tax avoidance. Offshore intermediaries facilitate such activities.

Keywords: Panama Papers, tax havens, offshore vehicle, corruption, tax evasion

JEL Classification: G32, G38, H25, H26

Suggested Citation

O'Donovan, James and Wagner, Hannes F. and Zeume, Stefan, The Value of Offshore Secrets – Evidence from the Panama Papers (April 19, 2016). Available at SSRN: https://ssrn.com/abstract=2771095

James O'Donovan

INSEAD ( email )

1 Ayer Rajah Avenue
138676 Singapore, 138676
Singapore

Hannes F. Wagner (Contact Author)

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

HOME PAGE: http://faculty.unibocconi.eu/hanneswagner

Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

Via Roentgen 1
Milan, 20136
Italy

Stefan Zeume

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

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