44 Pages Posted: 28 Apr 2016 Last revised: 12 Apr 2017
Date Written: April 19, 2016
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: 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
By Alex Edmans