Cut Us Some Slack: State Enforcement of Anti-Bribery Laws and Disinvestment by Multinational Corporations

Laws that prohibit corporations from offering bribes in foreign transactions have been frequently criticised by businessmen for jeopardising commerce. Policy makers too have feared companies could disinvest from foreign markets in response to these statutes. At the same time, political economy is often sceptical on states' ability to affect firms' decision-making at all. In light of these conflicting claims, this paper investigates the question: Does state enforcement of anti-bribery laws affect foreign investment decisions by firms? I argue that enforcement of anti-bribery laws does lead firms to disinvest but only from countries where businessmen perceive corruption as the only way business is done. I test this causal claim applying a difference-in-differences design on an original dataset on anti-bribery prosecutions between 1997 and 2015. I focus on the effect of the U.S. Foreign Corrupt Practices Act (FCPA) on investment decisions by firms. The FCPA is regarded as one of the most successful anti-bribery statutes. It applies to firms from different nationalities, thus allowing to work on a sample of 258 companies. Findings support my hypothesis and are robust to different model specifications. Results demonstrate that state instruments can affect firms' decision-making in international business, but this prerogative depends on institutional features of the markets where companies operate.