The Economics of Foreign Bribery: Evidence from FCPA Enforcement Actions Jonathan M. Karpoff a University of Washington D. Scott Lee b University of Nevada, Las Vegas Gerald S. Martin c American University This version: January 23, 2014 Abstract We develop and calibrate a model of bribery and its enforcement using data from enforcement actions initiated under the U.S. Foreign Corrupt Practices Act (FCPA) from 1978 through May 2013. We estimate that 22.9% of Compustat-listed firms with foreign sales engaged in a program of prosecutable bribery at least once during our sample period, and that the probability that a bribe-paying firm faces bribery charges is 6.4%. Bribes tend to be paid for important contracts, as the average ex ante NPV of a bribe-related contract is 2.6% of the firm’s market capitalization. The costs for firms that are prosecuted for bribery depend on whether the bribery is comingled with charges of financial fraud. Firms with comingled fraud charges face large fines, investigation costs, and reputational losses, such that the ex post NPV is negative. Bribe-paying firms without comingled fraud charges face significant fines and investigation costs, but do not, on average, lose reputation in a way that impedes future operations or profitability. JEL classification: G38; K22; K42; L51; M41 Keywords: Bribery, FCPA, corruption, penalties, fraud We thank an anonymous referee, Aaron Burt, Matt Denes, John Hackney, Lucas Perin, Bill Schwert, Liugi Zingales, and participants at seminars at Claremont-McKenna College, the University of Utah, the NBER Conference of Finance and Ethics, American University, Rutgers University, the University of Sydney, Queensland University of Technology, the University of Technology at Sydney, the Securities and Exchange Commission, the Oxford Symposium on Corporate Reputation, the University of Texas-San Antonio, and the University of Nevada, Las Vegas for helpful comments and suggestions on previous versions of this paper, and gratefully acknowledge financial support from the University of Washington’s CFO Forum and Global Business Center, and Texas A&M University’s Private Enterprise Research Center, and a Shell Foundation Development Research Grant. a Email: [email protected], Foster School of Business, University of Washington, Seattle, WA 98195, USA. b Email: [email protected], Lee Business School, UNLV, Las Vegas, NV 89154, USA. c Email: [email protected], Kogod School of Business, American University, Washington, DC 20016, USA.
The Economics of Foreign Bribery: Evidence from FCPA Enforcement Actions
Jul 06, 2023
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