Bribes and Firm Value

Abstract

I exploit the passage of the U.K. Bribery Act 2010 as a shock to U.K. firms’ cost of doing business in order to study the effect of bribes on firm value. Around the Act’s passage, U.K. firms operating in high-corruption countries display a drop in value. However, their non-U.K. competitors in these countries exhibit an increase in value. U.K. firms respond to the Act by reducing the expansion of their network of subsidiaries into perceivably corrupt regions. Moreover, compared to their non-U.K. competitors, U.K. firms’ sales in such regions grow 12 percentage points slower and their M&A activity declines. Taken together, I show that bribes facilitate doing business in certain regions. Imposing unilateral anti-bribery regulation on some firms benefits their unregulated competitors.