Corruption and International Valuation: Does Virtue Pay?

34 Pages Posted: 20 Nov 2006

See all articles by Charles M.C. Lee

Charles M.C. Lee

Foster School of Business, University of Washington; Stanford University - Graduate School of Business

David T. Ng

Johnson College of Business

Multiple version iconThere are 2 versions of this paper

Date Written: 2006

Abstract

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.

Suggested Citation

Lee, Charles M.C. and Ng, David T., Corruption and International Valuation: Does Virtue Pay? (2006). Johnson School Research Paper No. 41-06, Available at SSRN: https://ssrn.com/abstract=945629 or http://dx.doi.org/10.2139/ssrn.945629

Charles M.C. Lee (Contact Author)

Foster School of Business, University of Washington ( email )

224 Mackenzie Hall, Box 353200
Seattle, WA 98195-3200
United States

Stanford University - Graduate School of Business

Stanford Graduate School of Business
655 Knight Way
Stanford, CA 94305-5015
United States

David T. Ng

Johnson College of Business ( email )

301G Warren Hall, Cornell University
Ithaca, NY 14850-1967
United States
6072550145 (Phone)

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