An Analysis of Firms’ Self-reported Anticorruption Efforts

We use Transparency International’s ratings of self-reported anticorruption efforts for 480 corporations to analyze factors underlying the ratings. Our tests examine whether these forms of disclosure reflect firms’ real efforts to combat corruption or are cheap talk. We find that firms with high ratings are domiciled in countries with low corruption ratings and strong anticorruption enforcement, operate in high corruption risk industries, have recently faced a corruption enforcement action, employ a Big Four audit firm, and have a higher percentage of independent directors. Controlling for these effects and other determinants, we find that firms with lower residual ratings have relatively higher subsequent media allegations of corruption. They also report higher future sales growth and show a negative relation between profitability change and sales growth in high corruption geographic segments. The net effect on valuation from sales growth and changes in profitability is close to zero. Given this evidence, we conclude that, on average, firms’ self-reported anticorruption efforts signal real efforts to combat corruption and are not merely cheap talk. * Paul Healy is a Professor of Business Administration at Harvard Business School, and George Serafeim is an Assistant Professor of Business Administration in Harvard Business School. We are grateful to Transparency International, in particular Robin Hodess and Deborah Hardoon, for providing the data for this study. We also wish to thank Barbara Esty, Kathleen Ryan and James Zeitler for research assistance with the media and governance data. Many thanks go to anticorruption experts at PwC and Siemens for helpful conversations around the importance of transparency in anticorruption efforts. Finally we are grateful for comments received by our editors SP Kothari and Rebecca Henderson, an anonymous referee, Robert Eccles, Eddie Riedl, Joe Weber (discussant), Gwen Yu, and participants at the HBS International Seminar, Boston University, Cornell University, NYU, and the HBS Corporate Accountability Reporting Conference. The project was supported by financial assistance from the Department of Faculty Research and Development of the Harvard Business School. Contact emails: Paul Healy [email protected], George Serafeim [email protected].