The Impact of Anti-Bribery Enforcement Actions on Targeted Firms

Abstract:     
Firms prosecuted for foreign bribery experience significant costs. Their share values decline by 3.11%, on average, on the first day that news of the bribery enforcement action is reported, and by 8.98% over all announcements related to the enforcement action. Fines, internal investigation costs, and losses associated with financial restatements account for 3.20% of the cumulative loss in share values, suggesting that the remainder, 5.78%, could be attributed to a reputational impact. Closer inspection, however, indicates that most bribery enforcement actions are co-mingled with charges of financial misrepresentation and fraud, and that most of these firms’ costs are due to the financial violations, not the bribery charges per se. Excluding cases in which the bribery charges are accompanied by charges of financial fraud, the mean initial loss in share value drops to -1.60%, and the cumulative loss to -3.55%. Focusing on bribery-related announcements that are not contaminated by contemporaneous charges for financial misrepresentation, the magnitude of the initial loss drops further, to -0.47%, and is statistically insignificant. These results indicate that the financial deterrents to bribery come primarily from the direct costs imposed by regulators, and not from an impact to the firm’s reputation with counterparties.

Number of Pages in PDF File: 54

Keywords: Bribery, FCPA, penalties, financial misrepresentation, fraud

JEL Classification: G38, K22, K42, L51, M41

working papers series