The Impact of Anti-Corruption Laws: Evidence from the U.K. Bribery Act\u27s Extraterritorial Reach

I study the impact of anti-corruption laws by introducing a within-country foreign setting that exploits US multinational firms\u27 differential exposure to the extraterritorial jurisdiction of the 2010 United Kingdom Bribery Act (UKBA). I show that adoption of the UKBA, which is stricter than the US Foreign Corrupt Practices Act (FCPA) in several key respects, induces US firms with material UK business to curb their exposure to corrupt countries, relative to US peers without material UK business. The effect is more pronounced for firms with higher enforcement risk and ex ante bribery risk. Following adoption, more US firms stop reporting their UK segment (compared to their German segment), consistent with some firms reducing their exposure to the UK’s jurisdiction. Additionally, firms that reduce their UK exposure have relatively high pre-adoption business in corrupt countries. This study, which is the first to provide evidence on the effects of extraterritorial foreign anti-corruption laws on US firms, suggests that stricter anti-corruption laws abroad increase expected costs of bribery for US multinationals and thereby drive real changes to their international business. This study also demonstrates how extraterritoriality, which is increasingly common due to globalization, can be exploited to provide plausibly causal evidence of the impact of new laws and regulations