December 12, 2004

Corruption and Valuation

Transparency International got some media attention last week as the UN declared December 9 "Anti-Corruption Day". The World Bank also supported this initiative. It turns out that Transparency's corruption measures also have investment significance. Charles Lee and David Ng of Cornell University have done a strong study on the impact of corruption on corporate valuation. They find that markets punish companies that operate in more corrupt countries by awarding them lower valuation ratios (Price/Book and Price/Earnings). has a good summary of the study, which won last year's Moskowitz Prize.