Cross-border effects of US FCPA enforcement: information and institutional spillovers in China through industry peers

We examine whether and how the US Foreign Corrupt Practices Act (FCPA) drives intra-industry information spillovers that propagate cross-border institutional spillovers in China. Regulatory disclosures of FCPA enforcement actions against US firms can influence non-violating Chinese firms in the same industry through either (1) contagion risk arising from increased anti-corruption scrutiny in China or (2) competitive advantage due to reduced competition from US counterparts. Consistent with the contagion risk (competitive advantage) effect, we provide evidence over the 2011–2023 sample period that Securities and Exchange Commission disclosures of China-related (non-China-related) FCPA violations by US peer firms generate valuation discounts (premiums) among non-violating Chinese focal firms that are more likely to be suspected of corruption. Further analyses reveal subsequent decreases (increases) in profitability and suspected corruption spending among these Chinese firms. Our findings suggest that FCPA-related regulatory disclosures play an information subsidy role given the lack of transparency regarding corruption activities and serve as a form of institutional subsidy that promotes monitoring against such practices in weaker regulatory environments. While the pros and cons of the FCPA for US firms remain debatable, our study implies that international coordination and collaboration in anti-corruption enforcement should be strengthened to curb bribery in international business.