Unintended Consequences of Foreign Anti-Corruption Laws for Geographic Disclosure Transparency

Abstract

A growing body of research shows that anti-corruption laws lead firms to curb their operations in countries with a high risk of corruption, affirming the intended effect of these laws. However, this study documents an unintended consequence of anti-corruption laws: a reduction in the transparency of firms’ geographic disclosures with respect to their corruption risk. We find that U.S. multinationals subject to the 2010 U.K. Bribery Act (UKBA) report a larger portion of revenues in more opaque regions (e.g., Europe) following the law’s adoption, rather than in more transparent country-level disclosures. This decline in transparency is not attributable to firms aggregating country-level disclosures into regional reporting areas; rather, it arises from firms reporting a greater share of revenues from their existing, less transparent regions without updating their reporting areas to reflect changes in their business operations induced by the law. Our findings highlight how a change in exposure to foreign anti-corruption laws, coupled with the relevant accounting standards’ lack of guidance as to when firms must update their geographic disclosures, can reduce transparency. Our results emphasize the importance of firms adapting their reporting strategies in response to changes in their regulatory and business environments.

Keywords: Geographic reporting, corruption, transparency, U.K. Bribery Act, ASC 280

JEL Classification: F23; F60; K20; M40