In Bribes and Firm Value, Zeume investigates whether the ability to use bribes creates company value.

He asserts that the use of bribes is common in business, citing a worldwide survey that estimates one third of companies use bribes to win public procurement contracts. Since most cases of bribery go undetected, there is limited research on the use and impact of bribes. Where research does exist, the samples are typically biased and small.

 Zeume, S. (2014) Bribes and Firm Value. Available at SSRN: abstract=2179437 or

The passage of the UK Bribery Act 2010 (the Act) is used to empirically evaluate the impact of anti-bribery regulation on the valuation of UK companies. This regulation was unexpected, creating a unique opportunity to analyse the impact of new legislation on equity prices. The author finds that UK companies operating exclusively in the most corrupt regions of the world experienced a 6% drop in value after the Act was passed, compared with companies operating exclusively in the least corrupt regions. From this he concludes that companies do benefit from the ability to use bribes, and antibribery regulation reduces shareholder value. Certain types of companies benefit more from the ability to use bribes, mainly those companies that are in concentrated industries, are not subject to the US Foreign Corrupt Practices Act through a US crosslisting, and not part of the FTSE4Good index.


The primary hypothesis is that companies operating in regions with high corruption levels will experience a larger drop in firm value when antibribery legislation is passed. Bribery is defined by the Act as “offering, giving or promising to give a financial or other advantage to a person in exchange for that person improperly performing a relevant function”. The Act was not discussed publicly or in the media until the day it was passed by a government commission, and significantly tightened UK anticorruption legislation. The Act made it a criminal offence to use bribes or to fail to have in place internal controls that prevent individuals from making or receiving bribes, with penalties including unlimited fines for companies and potential prison terms for individuals – significantly increasing the potential cost of making bribes to both UK companies and foreign companies with UK exposure. The study analyses the stock price of UK companies on the day of, and the day after, the news of the passage of Act was made public.

Data is drawn from standard industry sources including Datastream for stock prices, uses Transparency International (TI) for information on the relative perceived corruption in different countries, and RiskMetrics/ ISS for corporate governance data. The sample includes 645 listed UK companies for which the author found sufficient stock return and subsidiary data. Zeume evaluates a companyspecific ‘corruption exposure’ based on a weighted average of the TI Corruption Perceptions Index for its subsidiary countries.


The central finding is that companies with a higher corruption exposure are more negatively affected by the introduction of anti-bribery regulation. For each additional standard deviation above the average exposure to corrupt countries, a company’s value drops by around 0.5%, up to a maximum 6% drop for the company operating exclusively in the country with the highest perceived corruption score (Somalia). The drop in value may in part be due to the potential loss of business if bribes are not used, but also due to the costs of implementing the internal controls required by the Act, which may be higher for companies operating in corrupt regions. The results hold within industries, so are not driven by industry-level corruption.

A secondary finding is that subsequent to the introduction of the Act, UK companies (including European companies with exposure to the UK and therefore affected by the Act) expanded into high corruption regions much more slowly than their peers in Europe, and revenue from corrupt regions lagged revenue generated by non-UK companies, suggesting that an inability to use bribes does in fact limit companies’ ability to operate.

Other findings include:

  • Companies that are already subject to anti-bribery regulation in the US are less negatively affected by the UK legislation than companies that are not subject to the US regulation.
  • Companies that are part of the FTSE4Good UK Index (which includes companies that fulfil a range of corporate social responsibility criteria) are less negatively affected by anti-bribery legislation than companies that are not part of the FTSE4Good index.
  • Companies operating in more concentrated (define?) industries, i.e. with fewer competitors, are more negatively affected by anti-bribery legislation, possibly because the use of bribes increases in less competitive industries.
  • Companies with strong corporate governance are more negatively affected by anti-bribery legislation. Zeume posits that this is because well-governed companies have higher potential reputation costs, and finds only weak support for the theory that anti-bribery regulation should strengthen internal monitoring.

The results are robust to comparisons with companies operating in corrupt regions but not subject to the UK antibribery regulation. Such companies do not experience abnormal negative returns during the time period being studied suggesting that the impact on UK exposed companies is all due to the new regulation. Zeume also excludes the possibility that other events around the same time cause the price movements. Examining stock price performance around media coverage of anti-bribery regulation over a longer period, 2000-2013, similar patterns of results are found i.e. that companies with higher exposure to corrupt regions are more negatively affected to corrupt regions on days when media news flow suggests an impending increase in regulation.


Zeume concludes that individual companies can benefit from the ability to use bribes as long as some of their competitors use bribes. Localised antibribery legislation that impacts some companies but not others in a global marketplace reduces shareholder value for the regulated companies. However the research does not lead to any conclusions on the broader implications for economies of either allowing or limiting corruption. Indeed, although companies may benefit from making bribes, they may benefit more from a worldwide ban on bribery.

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    RI Quarterly Vol. 3: Long-termism in financial markets

    April 2014

RI Quarterly Vol. 3: Long-termism in financial markets