Bribes and Corporate Performance: Evidence from a Quasi-Natural Experiment
38 Pages Posted: 10 Sep 2020
Date Written: September 8, 2020
We examine how bribes may affect corporate performance using a quasi-natural experiment. Specifically, we exploit the 2016 enactment of the Improper Solicitation and Graft Act in Korea which limits provision of gifts and entertainment to public sector employees as an exogenous shock to bribery practices. We find that a firm’s level of bribery activities, instrumented by industry-level government exposure, has a negative impact on its performance. In particular, a reduction in predicted bribery activity results in a significant improvement in operating performance. Overall, our findings provide convincing evidence that bribery may impair corporate performance.
Keywords: bribes, anti-graft law, firm performance, regulation, entertainment expense
JEL Classification: D73, G32, G38
Suggested Citation: Suggested Citation