Market reactions to transparency international reports on corporate anti-corruption

Abstract

In this paper, we examine the investor response to the issuance of Transparency Internationals (TI) 2012 and 2014 Transparency in Corporate Reporting: Assessing the Worlds Largest Companies reports. Building on prior studies of political cost-inducing events in the environmental domain, we anticipate a negative market reaction, although we argue that the adjustment will be less severe for firms rated as having better anti-corruption disclosure. Focusing on a sample of U.S. companies to control for country-level effects and to allow for comparison with the prior environmental-themed studies, we document a significantly negative market reaction to the first TI report issuance. Although also negative, the market reaction to the 2014 report was not statistically significant. However, we also document that, as expected, market adjustments differ significantly across subgroups based on anti-corruption disclosure in both time periods. These results hold controlling for other factors potentially influencing investor perceptions of exposure to the report issuances. In general, our results are consistent with the prior studies and indicate that the market is savvy to political cost exposures arising from non-environmental events. The findings also suggest that TIs efforts may be increasing stakeholder pressure for corporate anti-corruption performance, but we caution that further investigation of the relation between disclosure and underlying performance in the corruption domain is warranted.