Experience-based corporate corruption and stock market volatility: Evidence from emerging markets


Lau C. K. M. , DEMİR E., BİLGİN M. H.

EMERGING MARKETS REVIEW, vol.17, pp.1-13, 2013 (Journal Indexed in SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 17
  • Publication Date: 2013
  • Doi Number: 10.1016/j.ememar.2013.07.002
  • Title of Journal : EMERGING MARKETS REVIEW
  • Page Numbers: pp.1-13
  • Keywords: Stock market volatility, Corruption, Emerging markets, Uncertainty, GOVERNMENT PARTISANSHIP, FIRM GROWTH, UNCERTAINTY, BRIBERY, PERFORMANCE, ELECTIONS, RETURNS, GMM

Abstract

This paper reassesses how "experience-based" corporate corruption affects stock market volatility in 14 emerging markets. We match the World Bank enterprise-level data on bribes with a unique cross-country macroeconomics dataset obtained from the World Bank development indicators. It is found that wider coverage of "realized" corporate corruption in the emerging markets investigated reduces the stock market volatility, attributed to decrease in uncertainty about government policy with regard to the business environment, as implied by the general equilibrium model of Pastor and Veronesi (2012). Overall, our results suggest that stock price volatility decreases as the uncertainty about government policy becomes more predictable, which is consistent with the testable hypotheses of Pastor and Veronesi (2012). (C) 2013 Elsevier B.V. All rights reserved.