Lee, Charles M.C., and David T. Ng. "Corruption and International Valuation: Does Virtue Pay?" Cornell University, Working Paper, November 2002.

Analyzes the impact of corruption on valuation multiples (P/E and Price/Book) of companies in 46 countries for the 1995-1998 time period. Financial data came from the Worldscope database and I/B/E/S. Estimates of the level of corruption by country were provided by the annual Transparency International CPI index for the years 1995-98. The CPI index is a "poll of polls" summarizing information from 12 surveys and ratings of corruption (more info at www.transparency.org).

Finds that after adjusting for firm-level drivers of valuation (such as ROE, forecasted growth, financial leverage, and R&D) and country-level ones (such national market beta, inflation, and trade balance), companies in countries with higher levels of corruption tended to have lower valuation ratios, and vice-versa. The Corruption variable is highly significant in all variations of both the P/E and Price/Book models.

The findings were replicated using an alternate measure of corruption (ICRG Index).