Disclosure Regulation, Corruption, and Investment: Evidence from Natural Resource Extraction

Abstract

I study the real effects of mandatory social responsibility disclosures and their underlying economic mechanisms by exploiting a novel institutional setting in the extractive industries. In Europe and Canada, extractive firms have to publicly disclose their payments to foreign host governments in a granular report on their corporate website to discourage the bribery of foreign public officials and other illicit payment avoidance practices. Using manually-collected data on firms' extractive activities abroad and exploiting the staggered, plausibly-exogenous adoption of extraction payment reports across developed countries and firms' fiscal year ends, I find that disclosing companies increase their payments to host governments but decrease and reallocate investments relative to non-disclosing competitors, particularly in corrupt countries. Additional cross-sectional evidence indicates that the increased threat of public shaming and legal enforcement are two important mechanisms through which these disclosures generate real effects. In contrast, I do not find that extraction payment disclosures improve aggregate corruption indices abroad, which questions unilateral disclosure mandates aimed at addressing social policy objectives.

Keywords: Real Effects; Disclosure Regulation; Corruption; Public Shaming; Enforcement; Corporate Social Responsibility

JEL Classification: G14; G38; K22; L71; M41; M48; O10