The Political Economy of Anti-Bribery Enforcement
This paper documents novel evidence on the influence of political incentives in the regulatory enforcement of foreign bribery. Using exogenous variation in the timing and geographic location of U.S. Congressional elections, we find that the probability of a Foreign Corrupt Practices Act (FCPA) enforcement action against foreign firms located in the Senator’s jurisdiction increases significantly pre-election, spiking 23%, with zero equivalent move for equivalently global (but domestic-headquartered) firms in the Senator’s jurisdiction. Using hand-collected case-level data from the U.S. SEC and DOJ, we also observe larger discretion in regions where foreign firms are larger global competitors of in-state firms, operate in locally important industries, and when Senators serve as the Chairman of the Senate Judiciary Committee (which oversees the DOJ). Anti-bribery enforcement has electoral implications, leading to spikes in media coverage of the FCPA enforcement coupled with greater vote shares for the Senator. Moreover, the cases pushed through against these foreign firms just prior to elections appear to be weaker cases. The enforcements result in real effects, as in response to strategic timing in enforcement, firms reallocate business segments and sales.
We would like to thank Anat Admati, Pat Akey, Elisabeth Kempf, Randall S. Kroszner, Ruichang Lu, Jiandong Ju, David Parsley, Jun Yang, Frank Yu, Stefan Zeume, and seminar participants at the 2021 American Finance Association Meetings, 2021 London Political Finance (POLFIN) Workshop, 2021 European Finance Association Meetings, 2021 Asian Bureau of Finance and Economic Research Meetings, 2021 China International Conference in Finance Meetings, Peking University Guanghua School of Management, Tsinghua University PBC School of Finance, Renmin University, and US-China Trade Conference. We also thank Lin Lv and Ziqiong Xi for excellent research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.