Although the allegations have yet to be proven regarding Walmart's reported involvement with Mexican bribes, the story has shed light on some shady business practices which many experts already consider to be rampant.
On his Musings On Markets blog, NYU's finance guru Aswath Damodaran discusses the existence of bribery and corruption in the global corporate world. And finally he offers a simple methodology for incorporating these "dark" costs into valuation models.
As usual, his explanations are elegant and straightforward.
Did you ever think of considering bribes as an operating expense? Because that's what it is.
Countries sitting on natural resources are often led by corrupt officials.
Damodaran points to the recent case of Cobalt International Energy. According to a recent FT report, three high powered Angolan officials had hidden stakes in the company. When the report surfaced, the company instantly lost $900 million of its market cap evaporate.
Source: Damodaran
India is also notorious for corruption.
A huge telecom auction scandal in 2008 ended with the resignations and arrests of high-level politicians. Bribery among Indians is often overlooked. But bribes by foreign nationals are considered an "abomination."
Source: Damodaran
China has a record of shady public officials accumulating massive amounts of wealth.
Regarding the Bo Xilai scandal, Damodaran thinks the story is not about the tabloid headlines regarding wife, who has been accused of murder, or his son, who is see as a Ferrari driving playboy. Rather, Damodaran thinks the under-appreciated story has to do with politicians accumulating wealth beyond the income that comes from being a government official.
Source: Damodaran
See the rest of the story at Business Insider
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