Corruption risk and stock market effects: Evidence from the defence industry

Chandrasekhar Krishnamurti, Domenico Pensiero and Eswaran Velayutham

Pacific-Basin Finance Journal, 2021, vol. 70, issue C

Abstract: Motivated by the finding that corruption is rampant in the defence sector globally, we examine the stock market effects of firm-level corruption risk disclosure in the defence industry. We find that the disclosure of corruption risk scores have information content. Our multivariate tests show that the market reacts negatively to firms that have low corruption risk. Our study supports the ‘greasing the wheels’ hypothesis which suggests that corruption is a cost of doing business. Further, companies with low corruption risk experience lower stock price volatility after the disclosure of corruption risk scores. Finally, we also find that the disclosure of lower corruption risk is associated with an increase in firm-level market liquidity.

Keywords: Corruption risk; Stock market reaction; Information asymmetry; Market liquidity (search for similar items in EconPapers)
JEL-codes: D73 G34 H83 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:70:y:2021:i:c:s0927538x21001888

DOI: 10.1016/j.pacfin.2021.101681

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