Banning US Foreign Bribery: Do US Firms Win?

I document a striking stock market underperformance of US firms in industries engaged in international trade during the period March 1976 to December 1977. I argue that a suitable candidate for explaining it is the US unilateral banning of foreign bribery that takes place in this period of time. I conduct a long-run event-study to analyse the stock market performance of firms differing in exposure to this policy. The results show that the cumulative abnormal returns of companies in industries most opened to international trade start to fall precisely the day banning foreign bribery is introduced in the political debate, and keep falling until it becomes law. I also show that the patternsobserved are also evident when considering simply raw returns. Results are robust to different specifications and alternative explanations, such as oil prices or the exchange rate. I also disregard the influence of global shocks by performing the analysis for a country not subject to the policy. I conclude that the evidence points in the direction that the US unilateral banning of foreign bribery had a significant negative effect on the market value of firms most exposed to this policy.