How to Fight Corruption—and Why We Should
Petty corruption was long thought to grease the wheels of business. But economists are learning how much it can hold back some companies and local economies.
How to Fight Corruption—and Why We ShouldPaper Disclosure Regulation, Corruption, and Investment: Evidence from Natural Resource Extraction
I examine how mandatory extraction payment disclosures (EPD) ─ a policy solution intended to discourage corporate payment avoidance in the oil, gas, and mining industries ─ affect fiscal revenue contributions and investments by multinational firms in foreign host countries. Using the staggered adoption of EPD across firms headquartered in Europe and Canada, I find that disclosing companies increase their payments to host governments, decrease investments, and obtain fewer extraction licenses relative to non-disclosing competitors. These effects are stronger for firms that face a high risk of public shaming, operate in corrupt host countries, and have a high exposure to bribery-prone payments, suggesting that EPD increases the reputational cost of corporate behavior that could be perceived as exploitative. The resulting reallocation of investments from disclosing to non-disclosing firms reduces drilling productivity and resource production in host countries, consistent with uneven disclosure regulation distorting capital allocation.
- Authored by
- 2019
- Political Economy
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