The Impact of Anti-Bribery Enforcement Actions on Targeted Firms

Firms prosecuted for foreign bribery experience significant costs. Their share values decline by 3.11%, on average, on the first day that news of the bribery action is reported, and by 8.98% over all announcements related to the regulatory enforcement action.

Fines, internal investigation costs, and losses associated with financial restatements account for 3.20% of the cumulative loss in share values, suggesting that the remainder, 5.78%, could be attributed to the reputational impact on firms that are prosecuted for bribery. Closer inspection, however, indicates that most bribery enforcement actions are co-mingled with charges of financial misrepresentation and fraud, and that most of these firms’ costs are due to the financial violations, not the bribery charges per se. Excluding cases in which the bribery charges are accompanied by charges of financial fraud, the initial share value loss averages ‑1.60%, and the cumulative loss averages ‑3.55%. Focusing on bribery-related announcements that are not contaminated by contemporaneous charges for financial misrepresentation, the magnitude of the initial loss drops further, to ‑0.47%, and is statistically insignificant.

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