Here we get a hint at sort of a lower bound of value created. We would expect it to be some of their value. And so if they manage to create value by using offshore vehicles, we wouldn’t expect it to be all of their value. A major coffee chain’s business is to sell cups of coffee around the globe on a daily basis. One needs to set it in relation to the fact that it’s not the main operation of these firms to be operating in offshore locations. ![]() It might mean that this data leak will merely lead to a few regulatory fines, which might amount to half a percent of market capitalization. However, all of these are large firms, so this reflects roughly 0.5% of market capitalization of these firms.Īt first glance, it would seem like low effect, but we have to bear in mind that it’s not really clear what this data leak actually means for corporations. It’s along the lines of $200 million per firm on average. The economic magnitude is rather stunning. We find that firms with exposure to any of these major havens lost roughly $230 billion in market capitalization. And of those, we identified roughly 1,100 firms that have exposure to any of the major tax havens that were used by Mossack Fonseca, the Panama-based law firm at the heart of the data leak. We collected stock price data for roughly 27,000 of them. We looked at the stock market reaction of publicly-listed firms around the globe. How did you study the impact of the data leak? The Enron case, for instance, showed that offshore vehicles can be used to tunnel money out of firms to steal from minority shareholders, reducing shareholder value. At the same time, a lot of these offshore activities are inherently unobservable, so it’s then not clear what firms are doing. We have some understanding that these offshore vehicles are used to save taxes, which would create shareholder value. Let me express my surprise that it has been an open debate whether and how offshore vehicles create shareholder value. Immediately, we realized this data leak might actually give us many more answers on the channels through which offshore vehicles affect firm value. It gets very hard to disentangle whether firms’ offshore vehicles are used for certain tax-saving activities, or whether they are just correlated with customary firm activities abroad. But generally the challenge is much of this activity is unobservable. All of my coauthors and I have worked on tax havens and on subsidiary data. It was a Sunday when the news came out, and that day we started exchanging emails, and then set up a Skype call. When did did you and your coauthors realize that the forced transparency of the Panama Papers could help you answer questions you’ve longed to answer? In this interview with senior editor Curt Nickisch, University of Michigan’s Ross School of Business professor Stefan Zeume discusses brand-new research resulting from the unexpected opportunity, and what he and his coauthors found: billions of dollars in lost market capitalization. It also created an academic windfall: the opportunity to study the real financial impact of offshore vehicles. The largest release of data ever on the secret world of offshore companies led to the resignation of Iceland’s prime minister. Explore our dedicated Panama site at data.Since they were first published on April 3, the Panama Papers have thrust a spotlight onto world politicians, celebrities, and businesses sheltering money offshore. The Financial Review team working on Panama Papers with the ICIJ was senior writer Neil Chenoweth, data journalist Edmund Tadros and graphic artist Les Hewitt. This included revelations this week that prime minister Malcolm Turnbull’s merchant banks in the 1990s received more than $3 million from the sale of shares held in companies linked to infamous Panama law firm Mossack Fonseca. ![]() The Financial Review linked senior figures in the governments of three countries-Australia, New Zealand and Malta-to tax haven companies. The ICIJ investigation involved more than 400 journalists and media organisations around the world, including The Australian Financial Review. UPDATE: The Panama Papers investigation led by the International Consortium of Investigative Journalists has been named 2016 Investigation of the Year in the prestigious Global Editors Network’s Data Journalism Awards in Vienna. A leak of 11.5 million files from Panamanian law firm Mossack Fonseca, one of the biggest leaks of confidential financial information in history, reveals the inside workings of a shadowy financial system that allows the wealthy and powerful to shift capital around the world where governments and tax agencies can't find it.
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