Stock Market Response to Private Corruption: The Moderation Role of Public Perceptions

ABSTRACT This study examines how corporate corruption events affect stock returns among European firms, focusing on the moderating role of public sector corruption perceptions measured by the Corruption Perceptions Index (CPI). Using over 25,000 firm‐level events from 2007 to 2022, the study finds that corruption events lead to negative abnormal returns, particularly in countries with low perceived corruption (high CPI scores). However, this effect weakens in more severe cases. The findings highlight the role of public perceptions in shaping investor reactions and offer insights for investors, policymakers and scholars on the financial consequences of corporate misconduct.