An Analysis of Firms' Self-reported Anticorruption Efforts

Paul M. Healy; George  Serafeim

Article | Accounting Review | March 2016

An Analysis of Firms' Self-reported Anticorruption Efforts

Abstract

We use Transparency International's ratings of self-reported anticorruption efforts for 480 corporations to analyze factors underlying the ratings. Our tests examine whether these forms of disclosure reflect firms' real efforts to combat corruption or are cheap talk. We find that the ratings are related to enforcement and monitoring, country and industry corruption risk, and governance variables. Specifically, firms with high anticorruption ratings are domiciled in countries with low corruption risk ratings and strong anticorruption enforcement, operate in high corruption risk industries, have recently faced a corruption enforcement action, employ a Big Four audit firm, and have a higher percentage of independent directors. Controlling for these effects and other ratings determinants, we find that firms with lower residual ratings have higher subsequent citations in corruption news events. They also report higher future sales growth and show a negative relation between profitability change and sales growth in high corruption geographic segments, but not in low corruption segments. The net effect on valuation from sales growth and changes in profitability is close to zero. The findings are robust to a number of sensitivity tests, including analysis of a narrower set of self-reported anticorruption efforts for a larger sample over multiple years. Given this evidence, we conclude that, on average, firms' self-reported anticorruption efforts signal real efforts to combat corruption and are not merely cheap talk.

Keywords: corruption; Performance; Corporate performance; Growth; Sales; disclosure; disclosure strategy; sustainability; Crime and Corruption; Corporate Disclosure; Performance; Sales;

Format: Print

SSRN Find at Harvard Purchase

Citation:

Healy, Paul M., and George Serafeim. "An Analysis of Firms' Self-reported Anticorruption Efforts." Accounting Review 91, no. 2 (March 2016): 489–511.

Analyzing data from approximately 1.5 million employees across 1,100 established public and private US companies, we find that the strength of employee beliefs about their firm’s purpose is lower in public companies. This difference is most pronounced within the salaried middle and hourly ranks, rather than senior executives. Among public companies, purpose becomes progressively lower with more concentrated shareholders, especially among firms with high hedge fund ownership. These patterns can be partly explained by differences in CEO backgrounds and compensation: public firms, particularly those with strong shareholders, choose outsider CEOs at higher rates and pay them more relative to their employees. Our analyses suggest that these results are not driven solely by sorting effects, but appear attributable in part to the impact that firm owners have on their employees. In summary, shareholders appear to influence the strength of corporate purpose deep within organizations via the leadership and corporate practices they enable at the top.

Rajat Gupta, former managing director of McKinsey & Company; a director of Goldman Sachs, Procter & Gamble, and AMR; and a well-known philanthropist, was convicted of engaging in insider trading. The case explores Gupta’s rise and the later legal problems he faced.

Faculty & Research

An Analysis of Firms' Self-reported Anticorruption Efforts

Abstract

Citation:

About the Authors

More from these Authors