Firms in Corrupt Countries Pay a Price in Market Value
Virtue seems to pay according to Professor Charles M.C. Lee whose research shows that publicly-held firms in countries perceived as less corrupt trade at bigger market premiums than those in places deemed more corrupt.
STANFORD GRADUATE SCHOOL OF BUSINESS—Stock markets are supposed to be the ultimate arbiter of company worth. But do they factor in a country's corruption, or virtue in valuing businesses?
Yes, says Charles M.C. Lee, an expert on markets and accounting at Stanford's Graduate School of Business. The GSB professor recently discussed his research showing that ethical lapses matter in the market value of companies. Publicly-held firms in countries perceived as less corrupt trade at bigger market premiums than those in places considered more corrupt, according to Lee. "Virtue seems to pay – at least over the longer term," he said in a November 5 talk.
On the flip side, "the market seems to price assets in more corrupt regimes as if they're worth less," said the Joseph McDonald Professor of Accounting. "Collectively as a country, when you're on average more corrupt, you have to pay for that when markets look at you and when capital providers come into your country."