Crime, Punishment and the Value of Corporate Social Responsibility

Abstract

Using enforcements of the Foreign Corrupt Practices Act, we test the hypothesis that socially responsible (ESG) firms receive lower sanctions from prosecutors. Since virtually all cases are settled by bargaining, we estimate sanction specifications derived from a Nash Bargaining model. To account for ESG firm bribes potentially being unobservably less egregious, we instrument ESG with regulation pages in the state of the firm's headquarters. Our instrumented estimates point to ESG firms receiving 14.3 million dollars or 65% lower sanctions, all else equal. Consistent with our exclusion restriction, pages of state laws are uncorrelated with revenues from bribes.

Keywords: Corporate Social Responsibility, Foreign Corrupt Practices Act, Halo Effect

JEL Classification: D2, D21, D6, D63, D64, G3, G30, G38, K3, K30, K42, M1, M14, M3, M37