Causes and Consequences of Firm Disclosures of Anticorruption Efforts

Using Transparency International’s ratings of firm disclosures on anticorruption efforts, we find that disclosures are related to firms’ country and industry exposures to corruption, and to enforcement and monitoring variables. We then examine whether firms’ residual anticorruption disclosures are related to subsequent allegations of corruption and subsequent performance. Firms with abnormally low anticorruption disclosures have higher subsequent media allegations of corruption than firms with abnormally high disclosure. They also report higher future sales growth, and a negative relation between profitability and sales growth in high corruption countries. None of those differences is observed across firms with high and low abnormal anticorruption disclosures in low corruption countries. We interpret these findings as indicating that firms with abnormally high disclosures enforce policies designed to combat corruption. These policies are accompanied by lower subsequent allegations of corruption, and lower but more profitable sales growth in high corruption countries. * Paul Healy is a Professor 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 to Barbara Esty and Kathleen Ryan for research assistance with the media data. Finally we are grateful for comments received by Gwen Yu and participants at the HBS International Seminar. 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].