THE IMPACT OF CORRUPTION ON SHARES' RETURNS OF EURO-AREA LISTED INDUSTRIAL FIRMS

This chapter illustrates an empirical analysis of the impact of corruption in share’s returns for a sample of the 1058 listed industrial companies belonging to euro-zone 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 has a clear connection with the determination 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, Graziadei 2006). Moreover, the division of the sample in different portfolios according to different level of capitalization highlights that control variables are definitely more important in portfolios with lowly-capitalized companies than in portfolios with highly-capitalized ones. The study suggests a similar evidence for both productivity and governance. Lowly-capitalized companies’ managers may influence more intensively the aggregate productivity than managers of highly-capitalized ones.