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 largest release of data ever on the secret world of offshore companies led to the resignation of Iceland’s prime minister. It also created an academic windfall: the opportunity to study the real financial impact of offshore vehicles. 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.

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?

It was a Sunday when the news came out, and that day we started exchanging emails, and then set up a Skype call. All of my coauthors and I have worked on tax havens and on subsidiary data. But generally the challenge is much of this activity is unobservable. 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. Immediately, we realized this data leak might actually give us many more answers on the channels through which offshore vehicles affect firm value.

Let me express my surprise that it has been an open debate whether and how offshore vehicles create shareholder value.

We have some understanding that these offshore vehicles are used to save taxes, which would create 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. 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. So it’s an open question.

How did you study the impact of the data leak?

We looked at the stock market reaction of publicly-listed firms around the globe. We collected stock price data for roughly 27,000 of them. 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.

So what did you find?

We find that firms with exposure to any of these major havens lost roughly $230 billion in market capitalization. The economic magnitude is rather stunning. It’s along the lines of $200 million per firm on average. However, all of these are large firms, so this reflects roughly 0.5% of market capitalization of these firms.

Did that surprise you?

At 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 might mean that this data leak will merely lead to a few regulatory fines, which might amount to half a percent of market capitalization.

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. A major coffee chain’s business is to sell cups of coffee around the globe on a daily basis. And so if they manage to create value by using offshore vehicles, we wouldn’t expect it to be all of their value. We would expect it to be some of their value. Here we get a hint at sort of a lower bound of value created.

The drop in share prices shows that investors perceive the leak as destroying value generated from offshore activities. What are the possible reasons for that?

What it might mean is that [investors believe] corporations may face punishment for too aggressive or even illegal tax avoidance or even tax evasion. What it might reflect is that they may be punished for avoiding sanctions or even financing corruption through offshore vehicles. There’s also this idea that some of the firms exposed through this data leak might suffer from customers being unhappy about the ways by which firms avoid taxes at home.

There is one additional feature of this data leak. If you think that all of these firms are like Enron – that they are using offshore vehicles to some extent to save taxes, but also to steal from shareholders – then the data leak might just put a stop to the stealing activity and even increase some value.

So really, what we appear to observe here is the sum of all of these effects, the sum of being potentially punished, being potentially less able to save taxes, but also the improvement in firms’ transparency, like the reduction in potential stealing possibilities.

But it doesn’t necessarily mean that firms will no longer be able to avoid taxes in legal ways. If this data leak meant that firms can no longer use tax havens to save taxes, then you would expect a much larger effect [than -0.5%]. And so in a sense, this data leak does not mean the end of tax havens or anything like that. It really most likely indicates [that investors expect] regulatory punishment and probably a slight reduction in the more aggressive types of tax avoidance.

You now have a read on what the market thinks the cumulative effect of these offshore vehicles is. But given how secret some of this activity is, could the market be wrong?

In finance, we like to believe that markets are efficient and do all the math. And also, if shareholders overreacted on April the 4th, the first trading day after the leak became public knowledge, we would actually be able to observe a correction that came later. At least so far, we have not seen a reversal in this effect.

There will be more revelations from the Panama Papers as more information comes to light, and as governments and companies and consumers respond. What are you looking forward to observing?

Recently, the journalists’ consortium ICIJ posted even more data that allows us to link individuals, such as company directors, to offshore vehicles. This additional information allows us to tease out which of these 1,100 firms were engaged in the more dubious types of activities. This in turn is going to help us understand how these vehicles actually created value.

It might be that firms saved taxes and are now less able to. It might be that firms used offshore vehicles for corruption, and now they are less able to. It might even be that some firms have a reputational damage for using offshore facilities. So the next step will be to tease out which of these are at play.