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| Version | User | Scope of changes |
|---|---|---|
| Jul 31 2006, 12:33 AM EDT (current) | Anonymous | 522 words added |
| Jul 31 2006, 12:31 AM EDT | Anonymous |
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Say what you will about the Worldbank, but they collect some interesting stats. check out the latest corruption stories here: Europe & Central Asia corruption
Things are getting better :) the Economist gives a nice synopsis if you are a subscriber check here economist article basically the perception of corruption as a major issue for business people in Europe and central Asian countries is improving. Russia is a notable exception :(
The good thing about reduced corruption is that it leads to security, stability and economic growth for almost everyone in a country. The strengthening of trust in institutions and relationships means more entrepreneurism and lower costs of capital for everyone. Now for the Shocker. The average firm still pays 2.9% in turner in bribes. Think about that for a moment. Doesn't sound much like the average person. But if you know how companies are valued from an EBIT perspective this is a huge drain on these economies. Many companies on US stock exchanges trade and are valued using a metric called PE or P/E multiple. this is basically the price of the share over the earnings (earning before interest & taxes) EBIT of the firm.
Firms in the US trade at a fairly high 18 PE. What this means is that for every extra $1 of earnings the value of the shares would theoretically increase $18. Now think about 2.9% of cash that just disappeared as a bribe. Ouch! If a company has revenue of $100m per year and pays $2.9m per year in bribes, that is a lot of value lost to shareholders and the economy.
Lets say the company above had 6% earnings a healthy return for US companies. The company above would be worth 18x$6m or $108m. Now if the same firm could recapture the 2.9% from bribes it would be worth $160.2m. Think about it corruption is costing the shareholders of this company $52m in value. Those shareholders may be family members, insurance companies, pension holders etc.
Without corruption these companies would be worth $48m more. Companies would be worth 48% more without corruption in these countries in this simple example. We are talking tens of billions of dollars in these economies.
That shareholder value could be borrowed against as debt. Consider the lost oppurtunity if companies or economies were able to have access to just 25% more capital for growth and investment in training, machinary, research. If we look at the big picture and make a gross extrapolation to GDP, there is a lot of value that disappears due to corruption. This value could be taxed at corporate rates and flow through to the government and re-invested in health care and education. That 2.9% factor for corruption sounds small, but think about the "value destroyed"
By the way how would you feel if your annual salary had %2.9 taken away by thugs every year. The good news is things are changing. Now it is time to get them changing faster. There is money and a lot of lives at stake, especially in poor countries. If you spot corruption (big or small) report it at : Bribewiki
Things are getting better :) the Economist gives a nice synopsis if you are a subscriber check here economist article basically the perception of corruption as a major issue for business people in Europe and central Asian countries is improving. Russia is a notable exception :(
The good thing about reduced corruption is that it leads to security, stability and economic growth for almost everyone in a country. The strengthening of trust in institutions and relationships means more entrepreneurism and lower costs of capital for everyone. Now for the Shocker. The average firm still pays 2.9% in turner in bribes. Think about that for a moment. Doesn't sound much like the average person. But if you know how companies are valued from an EBIT perspective this is a huge drain on these economies. Many companies on US stock exchanges trade and are valued using a metric called PE or P/E multiple. this is basically the price of the share over the earnings (earning before interest & taxes) EBIT of the firm.
Firms in the US trade at a fairly high 18 PE. What this means is that for every extra $1 of earnings the value of the shares would theoretically increase $18. Now think about 2.9% of cash that just disappeared as a bribe. Ouch! If a company has revenue of $100m per year and pays $2.9m per year in bribes, that is a lot of value lost to shareholders and the economy.
Lets say the company above had 6% earnings a healthy return for US companies. The company above would be worth 18x$6m or $108m. Now if the same firm could recapture the 2.9% from bribes it would be worth $160.2m. Think about it corruption is costing the shareholders of this company $52m in value. Those shareholders may be family members, insurance companies, pension holders etc.
Without corruption these companies would be worth $48m more. Companies would be worth 48% more without corruption in these countries in this simple example. We are talking tens of billions of dollars in these economies.
That shareholder value could be borrowed against as debt. Consider the lost oppurtunity if companies or economies were able to have access to just 25% more capital for growth and investment in training, machinary, research. If we look at the big picture and make a gross extrapolation to GDP, there is a lot of value that disappears due to corruption. This value could be taxed at corporate rates and flow through to the government and re-invested in health care and education. That 2.9% factor for corruption sounds small, but think about the "value destroyed"
By the way how would you feel if your annual salary had %2.9 taken away by thugs every year. The good news is things are changing. Now it is time to get them changing faster. There is money and a lot of lives at stake, especially in poor countries. If you spot corruption (big or small) report it at : Bribewiki
