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Reputational risk on corporate corruption scandals: evidence from Latin America

Reputational risk on corporate corruption scandals: evidence from Latin America This paper evaluates how corruption scandals effects corporate reputational risk in main representatives Latin America listed companies. Efficient market hypothesis (EMH) on Standard and Poor’s index is also tried on.Design/methodology/approachFirst it is run a standard event study to evaluate the negative impact of such corruption episodes in terms of abnormal returns (ARs) and cumulative negative abnormal returns (CARs). Secondly, we use the operational loss derived from the corruption scandal divided by the stock's market capitalization (Loss Ratio) to estimate the reputational abnormal returns (RepARs) and its cumulative measure (RepCAR).FindingsIt is found that corporate reputation (CR) does not affect the stock market performance of the companies involved in the corruptions events, at least, in the very short term. The results show positives RepCARs due to still unknown losses of relative size of corruption after the announcement of the scandal, when the market shows greater sensitiveness.Practical implicationsThe behavior of the market on corruption scandals on the Latin American can let explore other options to limit bribery, and the study of this with a perspective of EMH is the significance of this paper.Social implicationsCorruption become major problems in recent years in Latin American and its implications on the stakeholders.Originality/valueObserving in the existing literature, there is no many studies based on the corruption scandals and market price using event methodology. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Academia Revista Latinoamericana de Administración Emerald Publishing

Reputational risk on corporate corruption scandals: evidence from Latin America

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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1012-8255
DOI
10.1108/arla-07-2021-0156
Publisher site
See Article on Publisher Site

Abstract

This paper evaluates how corruption scandals effects corporate reputational risk in main representatives Latin America listed companies. Efficient market hypothesis (EMH) on Standard and Poor’s index is also tried on.Design/methodology/approachFirst it is run a standard event study to evaluate the negative impact of such corruption episodes in terms of abnormal returns (ARs) and cumulative negative abnormal returns (CARs). Secondly, we use the operational loss derived from the corruption scandal divided by the stock's market capitalization (Loss Ratio) to estimate the reputational abnormal returns (RepARs) and its cumulative measure (RepCAR).FindingsIt is found that corporate reputation (CR) does not affect the stock market performance of the companies involved in the corruptions events, at least, in the very short term. The results show positives RepCARs due to still unknown losses of relative size of corruption after the announcement of the scandal, when the market shows greater sensitiveness.Practical implicationsThe behavior of the market on corruption scandals on the Latin American can let explore other options to limit bribery, and the study of this with a perspective of EMH is the significance of this paper.Social implicationsCorruption become major problems in recent years in Latin American and its implications on the stakeholders.Originality/valueObserving in the existing literature, there is no many studies based on the corruption scandals and market price using event methodology.

Journal

Academia Revista Latinoamericana de AdministraciónEmerald Publishing

Published: Aug 16, 2022

Keywords: Risk premium; Stock returns; Efficient market hypothesis; Event studies; Corruption; Illegal behavior; Prima de riesgo; Rentabilidad de acciones; Hipótesis de mercado eficiente; Estudios de eventos; Corrupción; Comportamiento ilegal

References