Drivers of Corruption Risk and Stock Market Effects: Evidence from the Defence Industry

51 Pages Posted: 23 Jan 2017

See all articles by Chandrasekhar Krishnamurti

Chandrasekhar Krishnamurti

University of South Australia

Domenico Pensiero

University of Southern Queensland

Eswaran Velayutham

University of Southern Queensland

Date Written: January 21, 2017

Abstract

Since anecdotal evidence indicates that corruption is rampant in the defence sector globally, we examine the drivers of firm level corruption risk in the defence industry. Our empirical results indicate that visibility and shareholding are significant drivers affecting a firm’s corruption risk. Large firms and listed firms have lower corruption risk, other things being equal. Further, higher managerial shareholding is associated with higher level of corruption risk. These results hold even after controlling for country level drivers such as institutional quality, cultural and economic factors. Interestingly, stock markets in developed countries react more negatively around the announcement to firms achieving low corruption risk scores. Firms with low corruption risk experience lower stock price volatility after the disclosure of corruption risk scores. Finally, we also find that the disclosure of corruption risk is associated with an increase in firm level market liquidity.

Keywords: Corruption Risk, Stock Market Reaction, Information Asymmetry, Market Liquidity

JEL Classification: G34, H83, D73

Suggested Citation

Krishnamurti, Chandrasekhar and Pensiero, Domenico and Velayutham, Eswaran, Drivers of Corruption Risk and Stock Market Effects: Evidence from the Defence Industry (January 21, 2017). 8th Conference on Financial Markets and Corporate Governance (FMCG) 2017. Available at SSRN: https://ssrn.com/abstract=2903053 or http://dx.doi.org/10.2139/ssrn.2903053

Chandrasekhar Krishnamurti (Contact Author)

University of South Australia ( email )

37-44 North Terrace, City West Campus
Adelaide, South Australia 5001
Australia

Domenico Pensiero

University of Southern Queensland ( email )

P.O.Box 238 Darling Heights
Toowoomba, Queensland 4350
Australia

Eswaran Velayutham

University of Southern Queensland ( email )

P.O.Box 238 Darling Heights
Toowoomba, Queensland 4350
Australia

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