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Banning US Foreign Bribery: Do US Firms Win?

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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.

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  • Roberto Ramos, 2013. "Banning US Foreign Bribery: Do US Firms Win?," Working Papers wp2013_1309, CEMFI.
  • Handle: RePEc:cmf:wpaper:wp2013_1309
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    1. Jakob Svensson, 2003. "Who Must Pay Bribes and How Much? Evidence from a Cross Section of Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 118(1), pages 207-230.
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    3. Massimo Guidolin & Eliana La Ferrara, 2007. "Diamonds Are Forever, Wars Are Not: Is Conflict Bad for Private Firms?," American Economic Review, American Economic Association, vol. 97(5), pages 1978-1993, December.
    4. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    5. Benjamin A. Olken & Patrick Barron, 2009. "The Simple Economics of Extortion: Evidence from Trucking in Aceh," Journal of Political Economy, University of Chicago Press, vol. 117(3), pages 417-452, June.
    6. Paul Gompers & Joy Ishii & Andrew Metrick, 2003. "Corporate Governance and Equity Prices," The Quarterly Journal of Economics, Oxford University Press, vol. 118(1), pages 107-156.
    7. John L Graham, 1984. "The Foreign Corrupt Practices Act: A New Perspective," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 15(3), pages 107-121, September.
    8. Goldberg, Pinelopi Koujianou & Knetter, Michael M., 1999. "Measuring the intensity of competition in export markets," Journal of International Economics, Elsevier, vol. 47(1), pages 27-60, February.
    9. Raymond Fisman, 2001. "Estimating the Value of Political Connections," American Economic Review, American Economic Association, vol. 91(4), pages 1095-1102, September.
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