Anti-Corruption Laws and Geographic Reporting Transparency

Abstract

This study analyzes the effects of increased exposure to anti-corruption laws on firms’ geographic reporting transparency with respect to their perceived corruption exposure (“corruption transparency”). Using the 2010 adoption of the U.K. Bribery Act (UKBA) and its significant extraterritorial reach for identification, we conduct a difference-in-differences analysis comparing changes in corruption transparency for U.S. multinational firms with and without UKBA exposure. We find that, relative to comparison firms, UKBA-exposed firms have a significant decrease in corruption transparency. We develop a method to separate the effects of firms’ disaggregation choices from those of changes in their revenue mix across existing reported geographic areas. Our results suggest that this decrease in corruption transparency can be traced to exposed firms (1) actively shifting reported revenues into more opaque regions and (2) passively resisting splitting up more opaque regions when such regions experience stronger revenue growth. Overall, our evidence suggests that anti-corruption laws incentivize firms to exploit their considerable discretion under ASC 280 to camouflage their perceived corruption exposure.

Keywords: Geographic reporting, corruption, U.K. Bribery Act, reporting incentives

JEL Classification: F23; F60; K20; M40