ANN ARBOR—The Panama Papers leak exposed millions of confidential documents from the Panamanian law firm Mossack Fonseca, making offshore transactions very public.

New research by Stefan Zeume, assistant professor of finance at the University of Michigan’s Ross School of Business, shows the stock market valued some of these offshore activities.

Zeume and colleagues found that the 1,105 publicly traded firms with subsidiaries in the tax havens used by Mossack Fonseca lost a collective $222 billion to $230 billion of market capitalization—about $200 million per firm—after the leak was published in the media.

They also found similar drops in value for companies operating in countries perceived to be corrupt. The largest drops in value were seen with companies that had subsidiaries in Mossack Fonseca tax havens and in countries with politicians implicated by the leaked documents, such as Iceland.

“The findings together tell us that the market thought that firms created value by using tax haven subsidiaries. This leak destroyed some of that value,” Zeume said.

Zeume and co-authors James O’Donovan of INSEAD and Hannes Wagner of Bocconi University studied the stock prices of 26,700 companies—1,105 of which were involved with tax havens predominantly used by Mossack Fonseca.

While tax havens aren’t illegal, there are many reasons why this data leak destroys firm value, Zeume said.

Shareholders may fear a crackdown on tax havens that would mean companies could lose out on tax savings, which were priced into their stocks. Illegal activities such as tax evasion, financing corruption, money laundering or violation of sanctions could be exposed and lead some companies to pay hefty fines.

Also, customers of some companies exposed might resent them dodging taxes in their home countries and boycott or avoid their products. In the long run, the leak could turn out to be good news for some companies due to an improvement of transparency, Zeume said. After all, the data leak makes it costlier for managers to steal from shareholders without their knowing.

More information:

• Study: The Value of Offshore Secrets – Evidence from the Panama Papers
• Stefan Zeume