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Impact of Perceived National Corruption on the Returns to US Multinationals in Transactions with Foreign Governments

Review of accounting & finance, 2005-02, Vol.4 (2), p.26-58 [Peer Reviewed Journal]

Emerald Group Publishing Limited ;Copyright Barmarick Press 2005 ;ISSN: 1475-7702 ;EISSN: 1758-7700 ;DOI: 10.1108/eb043422

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  • Title:
    Impact of Perceived National Corruption on the Returns to US Multinationals in Transactions with Foreign Governments
  • Author: Gleason, Kimberly C ; Malgwi, Charles A ; Mathur, Ike ; Owhoso, Vincent
  • Subjects: Accounting procedures ; Capital costs ; Competition ; Competitive advantage ; Corruption in government ; Diversification ; Economic development ; Economic growth ; Expansion ; International ; Multinational corporations ; Product differentiation ; R&D ; Research & development ; Studies ; Telecommunications systems
  • Is Part Of: Review of accounting & finance, 2005-02, Vol.4 (2), p.26-58
  • Description: In this exploratory study, we investigate the influence and effects of foreign government corruption on the market value and accounting outcomes of US multinational corporations. We use hierarchical cluster analysis on Transparency International Corruption scores to identify high and low corruption in both developed and developing countries. We argue that corruption obscures the true value of assets, makes valuation difficult, and reduces the potential gains of an acquisition. We find that firms acquiring assets from governments in high corruption environments tend to be larger in size and more intangible asset-oriented than those expanding into low corruption environments. We find that the market responds much more favorably to expansions into low corruption environments than high corruption environments for both acquisitions and joint ventures. We find little evidence that long run accounting performance is adversely affected by government-multinational relationships in high corruption environments. However, long run market value outcomes are negative for all firms entering into relationships with foreign governments, and are especially negative for joint venture relationships in developing high corruption environments. Finally, we find that systematic risk increases substantially for firms entering high corruption environments through trust-based modes of expansions.
  • Publisher: Patrington: Emerald Group Publishing Limited
  • Language: English
  • Identifier: ISSN: 1475-7702
    EISSN: 1758-7700
    DOI: 10.1108/eb043422
  • Source: AUTh Library subscriptions: ProQuest Central
    Alma/SFX Local Collection
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