| dc.description.abstract | By investigating the phenomenon of corruption, we found that corruption represents a huge
cost on society. There exists extensive theory and literature on the costs of corruption, but
costs on firm-level has been limited. Because of this, we wanted to expand this literature by
looking at how a country`s level of corruption would affect a firms stock price reaction
resulting from news about corruption.
With a manual collection process we identified 71 individual corruption cases from six
countries within the time period from April 2010 to April 2015. Using the standard event
study methodology, we found a significant negative stock market reaction to the news about a
firm participating in corrupt actvities. For our sample as a whole, the cumulative average
abnormal return was -1.68% in the 7 days surrounding the event day. By doing a comparison
between firms from more corrupt countries and firms from less corrupt countries, we did not
find any evidence to say that the former should experience a more negative reaction on stock
price than the latter
In addition, our findings show that the size of the cumulative abnormal return resulting from
news about corruption is positively influenced by the size of the firm. We also found evidence
of an interaction effect, where an increasing price-book ratio will positively moderate the
effect of the level of corruption. This indicates that a higher price-book ratio is beneficial in more corrupt countries. | nb_NO |
