Abstract: Corruption is a phenomenon that not only has a ubiquitous presence across nation-states; it also straddles many established disciplines. The purpose of this review is to consider issues connected to the implementation of the measurement of corruption given that unbiased measurement is confounded by the illegal and secretive nature of corruption, as well as the common use of expedient but aggregate measures of corruption such as Transparency International’s Corruption Perception Index (CPI). When measurement is misaligned with concepts and theories of corruption, we see method biases emerging. We define four measurement biases and two research design biases. We measure their prevalence in research published in International Business/Management and Political Economy research. We provide recommendations for procedural remedies for the biases, while establishing two broad objectives for advancing empirical work in corruption as predicated upon emergent techniques for improved measurement of the corruption construct.
Abstract: How do firms react to the prospect of corruption in host countries? Although re-searchers argue that corruption is a deterrent to investment, considerable investment continues to flow to corrupt states. I argue that corruption does not deter investment when investors are able to form political connections with government officials. Due to the clandestine nature of corrupt activity, corruption in foreign direct investment is difficult to directly study using traditional data. To examine the relationship between corruption and foreign investment, I conduct a field experiment using a sample of 36,662 US and Canadian firms. In the field experiment, I manipulate expectations of political connections and expected corruption in host countries. I find that firms respond more favorably to investment opportunities in high corruption host countries when the expectation of political connections is present. These findings have broad implications for political economy research on corruption, foreign investment and corporate global strategy.
Abstract: I study the impact of foreign anti-corruption laws using a setting that exploits US multinational firms’ differential exposure to the extraterritorial jurisdiction of the 2010 United Kingdom Bribery Act (UKBA). Results suggest that adoption of the UKBA, which raised public litigation costs associated with foreign bribery, induces US firms subject to its jurisdiction to curb their business exposure to countries with high corruption risk, relative to their unexposed US peers. The effect is more pronounced for firms with greater enforcement risk and bribery exposure, and is robust to a battery of placebo and additional analyses. This study is the first to provide empirical evidence of the impact of foreign anti-corruption laws on US firms, which are already subject to the US Foreign Corrupt Practices Act. This evidence supports extraterritoriality as a critical element of effective anti-corruption laws and highlights its important role in regulating multinational firms in the globalized economy.
Abstract: We show that a mid-2000s increase in US extraterritorial enforcement of the Foreign Corrupt Practices Act (FCPA), characterized by greater international regulatory cooperation and more frequent use of the FCPA’s accounting provisions, has a significant deterrent effect on foreign direct investment in high-corruption-risk countries. The decrease in investment is at least as large for non-US as for US firms, suggesting that increased extraterritorial enforcement helps to level the foreign-investment playing field. Firms with fundamental characteristics that make it more difficult to maintain effective internal controls invest less in high-corruption-risk countries, suggesting regulatory compliance costs play an important role in deterring investment. Consistent with investments in accounting systems being one margin firms move on to limit enforcement risk when investing in high-corruption-risk countries, firms pursuing new investments spend more time evaluating potential acquisition targets and firms with existing investments report fewer internal-control weaknesses and restatements related to unintentional errors.
Abstract: We exploit enforcement actions for violations of the U.S. Foreign Corrupt Practices Act in non-OECD countries to study the effect of anti-bribery enforcement on unpunished firms. Firms in the same country-industry as the violator experience significant increases in revenue (+6.4%) and asset productivity (+4.2%). This result is driven by foreign-owned business group affiliates and amplified when affiliates are active in government-dependent industries, members of groups with limited corruption experience, and owned by productive parents. Overall, anti-bribery enforcement actions, which also reduce local corruption levels, result in reallocation of economic activity and level a playing field disrupted by corruption.
Abstract: Can prosecutions by US authorities help spread enforcement of anti-foreign bribery laws to other countries? In this article, we explore this question by re-examining an earlier study that found that US prosecutions of foreign defendants under the Foreign Corrupt Practices Act increases the likelihood that the defendant’s home state will enforces its own anti-foreign bribery laws. Using a conditional frailty Cox model that allows us to model anti-foreign bribery enforcement actions as repeat-events, we find that the relationship reported in earlier scholarship does not hold. Instead, our research indicates that the exposure of states to risks of foreign bribery is an important and overlooked predictor of the likelihood of enforcement. Still, while our findings indicate a more limited role of US enforcement actions in this particular instance, we nonetheless see many promising avenues for future research on transnational law enforcement relating to bribery in international business and in other areas.