Chapter 5: The impact of corruption on shares' returns of euro-area listed industrial firms
This chapter illustrates an empirical analysis of the impact of corruption on the return of shares for a sample of 1,058 listed industrial companies belonging to the eurozone countries between 1996 and 2006. Bellavite Pellegrini (2008) uses an innovative method to measure the relevance of the impact of control variables on returns of European stocks since the introduction of the euro. This study shows that control variables like governance and productivity have a clear connection with the determinants of stock returns, even though they represent a second-best condition with respect to the importance of the state variables according to the Fama and French analysis (Arnone, Bellavite Pellegrini and Graziadei 2006). Moreover, the division of the sample into different portfolios, according to different levels of capitalization, highlights that control variables are definitely more important in portfolios with low-capitalization companies than in portfolios with highly-capitalized companies. The study suggests similar evidence for both productivity and governance. Low-capitalization companies' managers may influence aggregate productivity more intensively than managers of highly-capitalized companies.
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