The Value of Offshore Secrets – Evidence from the Panama Papers by James O’Donovan, Hannes F. Wagner, Stefan Zeume.
O’Donovan and colleagues find the keyhole view of the Panama Papers has erased $230 Billion in market capitalization among the firms exposed by those papers.
Imagine the impact if:
- The Panama Papers were released to prosecutors charged with enforcing laws violated by the named firms and people.
- Thousands of people, not < 400, were combining the Panama Papers with data on the named firms and individuals.
Until there is a full release, or a secondary leak, of the Panama Papers, we may never know.
Abstract:
We use the data leak of the Panama Papers on April 3, 2016 to study whether and how the use of offshore vehicles affects valuation around the world. The data leak made transparent the operations of more than 214,000 shell companies incorporated in tax havens by Panama-based law firm Mossack Fonseca. The Panama Papers implicate a wide range of firms, politicians, and other individuals around the globe to have used secret offshore vehicles. Allegations include tax evasion, financing corruption, money laundering, violation of sanctions, and hiding other activities. We find that, around the world, the data leak erased an unprecedented risk-adjusted US$230 billion in market capitalization among 1,105 firms with exposure to the revelations of the Panama Papers. Firms with subsidiaries in Panama, the British Virgin Islands, the Bahamas, or the Seychelles – representing 90% of the tax havens used by Mossack Fonseca – experienced an average drop in firm value of 0.5%-0.6% around the data leak. We also find that firms operating in perceivably corrupt countries – particularly in those where high-ranked government officials were implicated by name in the leaked data – suffered a similar decline in firm value. Further, firms operating both in Mossack Fonseca’s primary tax havens and in countries with implicated politicians experienced the largest negative abnormal returns. For instance, firms linked to Mossack Fonseca’s tax havens and operating in Iceland experienced negative abnormal returns of -1.4%; the data leak revealed that Iceland’s Prime Minister failed to disclose beneficial interest in a British Virgin Islands incorporated shell company. Overall, our estimates suggest that investors perceive the leak to destroy some of the value generated from offshore activity.
Want your leak hoarded for personal gain?
I think you know the lesson the Panama Papers teaches.