The Value of Offshore Secrets - Evidence from the Panama Papers
James O'Donovan1, Hannes F. Wagner2, Stefan Zeume3
1INSEAD; 2Bocconi University; 3University of Michigan
Discussant: Thomas Lambert (Erasmus University Rotterdam)
We use the data leak of the Panama Papers on April 3, 2016 to study whether and how the use of secret offshore vehicles affects firm value around the world. The data provide insights into the operations of more than 214,000 offshore vehicles incorporated in tax havens by Panama-based law firm Mossack Fonseca. We find that the data leak erases US$135 billion in market capitalization among 397 public firms that we trace as users of offshore vehicles exposed in the Panama Papers. Firm value declines only when offshore activities are previously secret. In addition, we show that the leak reduces the net benefits of using secret offshore vehicles to violate anti-bribery regulations and evade taxes. Taken together, firms use secret offshore vehicles for value-enhancing but potentially illegal activities that go beyond tax avoidance. Offshore intermediaries facilitate such activities.
Leviathan Inc. and Corporate Environmental Engagement
Po-Hsuan Hsu1, Hao Liang2, Pedro Matos3
1University of Hong Kong; 2Singapore Management University; 3University of Virginia
Discussant: Inessa Liskovich (University of Texas at Austin)
In a special report in 2010, The Economist magazine called the resurging state-owned mega-enterprises worldwide, especially those from emerging economies, as “Leviathan Inc.”, and warned about the danger of such state capitalism model. While traditionally state-owned firms are criticized for weaker governance and less efficiency, they are also believed to be better positioned for dealing with market failures and externalities. Our findings based on publicly-listed firms from 45 countries suggest that state-owned companies engage more in environmental issues, and such engagement does not come as a cost for shareholders. This effect is more pronounced among firms in manufacturing industries, in emerging market economies (Latin America and Asia-Pacific), and in countries with higher energy dependence and greater conflict with neighboring states. State-owned firms reacted more significantly to the Copenhagen Accord signed in December 2009 in upgrading their environmental performance. Interestingly, state-owned firms also engage more in social issues but they do not have better corporate governance performance.
Debt and Incentives in Political Campaigns
Alexei V. Ovtchinnikov1, Philip Valta2
1HEC Paris; 2University of Bern, University of Geneva, Swiss Finance Institute
Discussant: Stefan Zeume (University of Michigan)
Debt is a significant source of funding of political campaigns, with almost half of all campaigns relying on some form of debt. In this paper, we analyze the legislative incentives created by this type of debt financing. We find that indebted politicians raise more funds in subsequent elections, especially from special interest groups. We also show evidence of votes-for-money arrangements, especially among indebted politicians, whereby politicians vote for the benefit of those interest groups that help funding their reelection campaigns. The results are consistent with the view that debt creates legislative distortions and exacerbates the principal-agent problem because it forces indebted politicians to take policy positions that are not aligned with the local constituents’ interests.