Bribes and Firm Value - Evidence from Anti-Bribery Regulation

Abstract

Do bribes create firm value? Answering this questio n is difficult because bribes are largely unobserve d. In this paper, I exploit the unexpected passage of the UK Bribery Act 2010 as an exogenous shock to firms’ cost of bribing in order to study how unobse rved bribes affect firm value. Using event study techniques, I find that bribery creates firm value in UK firms that are exposed to perceivably corrupt geographic regions. Exposure to perceivably corrupt regions is measured using hand-collected firm-leve l subsidiary data. I find that bribes create more val ue in firms that (i) operate in concentrated indust ries, (ii) are not already subject to the US Foreign Corrupt P ractices Act of 1977 through a US cross-listing, an d (iii) have strong firm governance. After the passag e of the UK Bribery Act, UK firms’ sales in perceivably corrupt regions grow 6 percentage point s more slowly than sales of continental European competitors. The UK Bribery Act also applies to for eign firms with UK operations. I document negative spillovers of the UK Act to foreign firms but only if these foreign firms have both (i) at least one U K subsidiary and (ii) exposure to perceivably corrupt regions. These negative spillovers are exhibited b y Western European foreign firms but not by Eastern European and Asian firms.