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

Krishnamurti, Chandrasekhar and Pensiero, Domenico and Velayutham, Eswaran ORCID: https://orcid.org/0000-0003-2492-5668 (2021) Corruption risk and stock market effects: evidence from the defence industry. Pacific-Basin Finance Journal, 70:101681. pp. 1-19. ISSN 0927-538X

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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.


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Item Type: Article (Commonwealth Reporting Category C)
Refereed: Yes
Item Status: Live Archive
Additional Information: Submitted version deposited in accordance with the copyright policy of the publisher.
Faculty/School / Institute/Centre: Current - Faculty of Business, Education, Law and Arts - School of Business (18 Jan 2021 -)
Faculty/School / Institute/Centre: Current - Faculty of Business, Education, Law and Arts - School of Business (18 Jan 2021 -)
Date Deposited: 22 Dec 2021 05:44
Last Modified: 10 Jan 2022 03:41
Uncontrolled Keywords: corruption risk; stock market reaction; information asymmetry; market liquidity
Fields of Research (2008): 15 Commerce, Management, Tourism and Services > 1502 Banking, Finance and Investment > 150201 Finance
15 Commerce, Management, Tourism and Services > 1502 Banking, Finance and Investment > 150205 Investment and Risk Management
15 Commerce, Management, Tourism and Services > 1502 Banking, Finance and Investment > 150299 Banking, Finance and Investment not elsewhere classified
Fields of Research (2020): 35 COMMERCE, MANAGEMENT, TOURISM AND SERVICES > 3502 Banking, finance and investment > 350299 Banking, finance and investment not elsewhere classified
35 COMMERCE, MANAGEMENT, TOURISM AND SERVICES > 3502 Banking, finance and investment > 350202 Finance
Socio-Economic Objectives (2008): C Society > 94 Law, Politics and Community Services > 9404 Justice and the Law > 940499 Justice and the Law not elsewhere classified
C Society > 94 Law, Politics and Community Services > 9404 Justice and the Law > 940402 Crime Prevention
A Defence > 81 Defence > 8101 Defence > 810199 Defence not elsewhere classified
Socio-Economic Objectives (2020): 23 LAW, POLITICS AND COMMUNITY SERVICES > 2304 Justice and the law > 230402 Crime prevention
14 DEFENCE > 1401 Defence > 140199 Defence not elsewhere classified
23 LAW, POLITICS AND COMMUNITY SERVICES > 2304 Justice and the law > 230499 Justice and the law not elsewhere classified
Identification Number or DOI: https://doi.org/10.1016/j.pacfin.2021.101681
URI: http://eprints.usq.edu.au/id/eprint/45391

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