Corporate Reputation’s Invisible Hand: Bribery, Rational Choice, and Market Penalties

Drawing upon rational choice and investor attention theories, we examine how accusations of corporate bribery and subsequent investigations shape market reactions. Using event study methodology to measure loss in firm value for public firms facing bribery investigations from 1978 to 2010, we found t...

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Bibliographic Details
Authors: Sampath, Vijay S. (Author) ; Gardberg, Naomi A. (Author) ; Rahman, Noushi (Author)
Format: Electronic Article
Language:English
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Published: Springer Science + Business Media B. V 2018
In: Journal of business ethics
Year: 2018, Volume: 151, Issue: 3, Pages: 743-760
Further subjects:B Market penalties
B Event Study
B Foreign Corrupt Practices Act
B Corporate Reputation
B Bribery
Online Access: Volltext (lizenzpflichtig)
Description
Summary:Drawing upon rational choice and investor attention theories, we examine how accusations of corporate bribery and subsequent investigations shape market reactions. Using event study methodology to measure loss in firm value for public firms facing bribery investigations from 1978 to 2010, we found that total market penalties amounted to $60.61 billion. We ran moderated multiple regression analysis to examine further the degree to which the unique characteristics of bribery explain variations in market penalties. Companies committing bribery in less corrupt host countries and with the involvement of compromised executives experienced greater market penalties than did other companies. After partitioning share value losses into components for regulatory penalties, class action settlements, and loss to reputation, we found that reputational penalties account for 81.8¢ of every dollar of share value loss. Omission of reputational penalties in rational choice calculus underestimates bribery costs by 4.5 times. The results suggest that firms should not underestimate the importance of market-imposed reputational penalties by merely considering regulator-imposed fines and sanctions.
ISSN:1573-0697
Contains:Enthalten in: Journal of business ethics
Persistent identifiers:DOI: 10.1007/s10551-016-3242-3