Corporate Reputation’s Invisible Hand: Bribery, Rational Choice, and Market Penalties

Sampath, Vijay; Gardberg, Naomi A.; Rahman, Noushi

doi:10.1007/s10551-016-3242-3

Cited by 60 publications

(50 citation statements)

References 68 publications

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“…Event studies have been historically used to investigate the impact of the inclusion in-or exclusion from-various sustainability indices on market valuations (Curran & Moran, 2007;Cheung, 2011; Daszynska et al, 2014;Adamska & Dabrowski, 2016). Finally, the event study methodology has been used to investigate the effects of social issues on market valuations, such as environmental disasters (Capelle-Blancard & Laguna, 2010), strikes (Becker & Olson, 1986), layoffs (Worrell et al, 1991), or corporate illegalities (Davidson & Worrell, 1988;Sampath et al, 2018). The latter examples underpin our choice of the research methodology (i.e.…”

Section: Data Description and Methodologymentioning

confidence: 99%

“…It is thus difficult to determine if the reactions are triggered by the companies' performance itself or by the informative function of the assessments delivered to investors. This problem has been addressed in studies that focus on the impact of primary ESG news on market valuations, examples of which include environmental disasters and mismanagements (Capelle-Blancard & Laguna, 2010;Xu et al, 2012), layoff announcements (Worrell et al, 1991), bribery and illegalities (Davidson & Worrell, 1988;Sampath et al, 2018). However, they all cover individual aspects of ESG misconducts selected in different time periods, geographies and with the use of various research methods, which also means that the comparability of the results is limited.…”

Section: Theoretical Framework and Hypothesesmentioning

confidence: 99%

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Disclosures of ESG Misconducts and Market Valuations: Evidence from DAX Companies

Dziadkowiec

Daszyńska-Żygadło

2021

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Environmental, social and governance (ESG) factors have become an important topic on capital markets amid an increasing interest in responsible investing. Despite this fact, public companies have been involved in a number of ESG misconducts in recent years, which were often against the interests of their stakeholders. In our research, we refer to stakeholder theory in order to show how disclosures of social misconducts against the companies’ stakeholders have affected market valuation of listed companies, which we treat as one of the measures of shareholders’ wealth. We conduct an event study on 235 ESG misconducts related to DAX companies. The data sample of ESG news was hand collected in a thorough content analysis in the period of 2000-2019. The main findings reveal that investors’ reactions were more severe for ESG news released after 2009 than before this date as illustrated by negative and significant cumulative average abnormal returns (CAARs) in different event windows, while before 2009 CAARs were insignificant. We also found out that investors reacted stronger to governance- rather than social or environmental news. Our results provide a guidance for listed companies on how ESG mismanagements might affect their market value, and for investors who intend to incorporate ESG factors in their investment decision processes.

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Section: Data Description and Methodologymentioning

confidence: 99%

Section: Theoretical Framework and Hypothesesmentioning

confidence: 99%

Disclosures of ESG Misconducts and Market Valuations: Evidence from DAX Companies

Dziadkowiec

Daszyńska-Żygadło

2021

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“…To test our hypotheses, we apply an event study. This kind of analysis is most appropriate for estimating the performance impact associated with firms’ CR to avoid social desirability bias (e.g., Kim, Colicchia, & Menachof, 2018; Pierce, 2018; Sampath et al., 2018). In principle, the event study methodology is based on the efficient market hypothesis, assuming that the stock price of a firm instantaneously reflects all publicly available information (Fama, 1970).…”

Section: Methodsmentioning

confidence: 99%

“…As noted earlier, corporate illegalities like CR proceed through the following sequence or process steps: trigger, investigation, regulatory, and resolution (Karpoff et al., 2008; Sampath, Gardberg, & Rahman, 2018). Here, a trigger is the first disclosure of a CR event, for example, self‐disclosures of misdeeds or whistleblower charges.…”

Section: Theory and Hypothesesmentioning

confidence: 99%

Examining the Stock Price Effect of Corruption Risk in the Supply Chain

Kim

Wagner²

2020

Decision Sciences

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Although corrupt practices in the supply chain are not rare, this topic seems neglected in the literature. This could potentially be because a supply chain focused framework is lacking, and therefore it is difficult to measure the true impact of such issues. Why, how, and how much does corruption damage the corresponding firm in the supply chain? Our study takes what we term a supply chain view of corruption, and then estimates the stock price effect of corruption from that point of view. We focus on kickbacks and bribery issues that may damage a target firm's reputation and its market value. In particular, we address firms’ corrupt practices from a sustainability risk perspective with the conceptualization of corruption risk (CR). Using an event study methodology, based on a sample of 315 CR cases in the United States, we find significant market penalties for allegations of the target firms’ CRs (triggers) and its subsequent issues (investigation, regulatory and resolution). However, the market penalties are largely driven by triggers, not by the subsequent issues. We further reveal that the stock market reacts more negatively to CRs that occur upstream with suppliers than downstream with customers. Therefore, target focal firms must be cautious with upstream–trigger CRs.

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“…Consequently, an increased risk of opportunism stimulates more pronounced transaction costs, particularly monitoring and enforcement costs (Nooteboom et al 1997;Romar 2004). While monitoring costs are the costs associated with ensuring that a party fulfills its predetermined obligations (Sampath et al 2018), enforcement costs include the costs associated with sanctions or exerting control over a party that fails to fulfill its obligations (De Colle et al 2014). Collectively, behavioral uncertainty and the risk of opportunism motivate firms to prefer vertical integration as they seek to minimize monitoring and enforcement costs (Geyskens et al 2006).…”

Section: Transaction Cost Theorymentioning

confidence: 99%

Private Sector Corruption, Public Sector Corruption and the Organizational Structure of Foreign Subsidiaries

Sartor

Beamish

2019

J Bus Ethics

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Corporate anti-corruption initiatives can make a substantial contribution towards curtailing corruption and advancing efforts to achieve the United Nations' Sustainable Development Goals. However, researchers have observed that underdeveloped assumptions with respect to the conceptualization of corruption and how firms respond to corruption risk impeding the efficacy of anti-corruption programs. We investigate the relationship between the perceived level of corruption in foreign host countries and the organizational structure of subsidiary operations established by multinational corporations (MNCs). Foreign host market corruption is disaggregated into two components-private and public corruption. We employ an uncertaintybased perspective grounded in transaction cost theory to focus upon the distinct mechanisms through which private and public corruption can each be expected to impact a foreign subsidiary's organizational structure [wholly-owned subsidiary (WOS) or a joint venture (JV) with a local partner]. We expect that each type of corruption fosters a different type of uncertainty (environmental or behavioral) which predominates in shaping the MNC's choice of foreign subsidiary investment structure. Hypotheses are developed and tested with a sample of 187 entries into 19 foreign host markets. Each type of corruption was found to exert a distinct effect upon the organizational structure of foreign subsidiaries. More precisely, while heightened perceived levels of public corruption were found to motivate MNCs to invest through a JV with a local partner rather than a WOS, more pronounced private corruption precipitated the opposite outcome.

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Corporate Reputation’s Invisible Hand: Bribery, Rational Choice, and Market Penalties

Cited by 60 publications

References 68 publications

Disclosures of ESG Misconducts and Market Valuations: Evidence from DAX Companies

Disclosures of ESG Misconducts and Market Valuations: Evidence from DAX Companies

Examining the Stock Price Effect of Corruption Risk in the Supply Chain

Private Sector Corruption, Public Sector Corruption and the Organizational Structure of Foreign Subsidiaries

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