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http://ssrn.com/abstract=1573222
 
 

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The Economics of Foreign Bribery: Evidence from FCPA Enforcement Actions


Jonathan M. Karpoff


University of Washington - Michael G. Foster School of Business

D. Scott Lee


University of Nevada, Las Vegas - Lee Business School

Gerald S. Martin


American University - Kogod School of Business

January 23, 2014


Abstract:     
We develop and calibrate a model of bribery and its enforcement using data from enforcement actions initiated under the U.S. Foreign Corrupt Practices Act (FCPA) from 1978 through May 2013. We estimate that 22.9% of Compustat-listed firms with foreign sales engaged in a program of prosecutable bribery at least once during our sample period, and that the probability that a bribe-paying firm faces bribery charges is 6.4%. Bribes tend to be paid for important contracts, as the average ex ante NPV of a bribe-related contract is 2.6% of the firm’s market capitalization. The costs for firms that are prosecuted for bribery depend on whether the bribery is comingled with charges of financial fraud. Firms with comingled fraud charges face large fines, investigation costs, and reputational losses, such that the ex post NPV is negative. Bribe-paying firms without comingled fraud charges face significant fines and investigation costs, but do not, on average, lose reputation in a way that impedes future operations or profitability.

Number of Pages in PDF File: 65

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

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

working papers series


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Date posted: March 22, 2010 ; Last revised: February 20, 2014

Suggested Citation

Karpoff, Jonathan M. and Lee, D. Scott and Martin, Gerald S., The Economics of Foreign Bribery: Evidence from FCPA Enforcement Actions (January 23, 2014). Available at SSRN: http://ssrn.com/abstract=1573222 or http://dx.doi.org/10.2139/ssrn.1573222

Contact Information

Jonathan M. Karpoff (Contact Author)
University of Washington - Michael G. Foster School of Business ( email )
Box 353200
Seattle, WA 98195-3200
United States
206-685-4954 (Phone)
206-221-6856 (Fax)
D. Scott Lee
University of Nevada, Las Vegas - Lee Business School ( email )
4505 S. Maryland Parkway
Box 456008
Las Vegas, NV 89154-6008
United States
702-895-2526 (Phone)
702-895-4630 (Fax)
HOME PAGE: http://faculty.unlv.edu/slee
Gerald S. Martin
American University - Kogod School of Business ( email )
Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States
202-885-3914 (Phone)
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