Foreign Corrupt Practices Act and corporate foreign philanthropic giving

Abstract

The Foreign Corrupt Practices Act (FCPA) was enacted by the U.S. Congress in 1977 to fight against corporate bribery to foreign officials. The FCPA significantly increases the bribery costs of multinational enterprises (MNEs) in the enforcement country. I conjecture that as an alternative to bribery, MNEs use corporate foreign giving as a strategic tool to obtain and maintain legitimacy for their foreign operations. Employing a large sample of corporate foreign philanthropic giving data of U.S. MNEs from the Foundation Center, which span from 2002 to 2015 and cover donations by 191 corporate foundations to 156 foreign countries and utilizing a staggered differences-in-differences (DiD) empirical design, I find that MNEs donate more to the foreign country after the first FCPA enforcement in that country, relative to foreign countries with no FCPA enforcement, and to their home countries. More importantly, I find such donations to be done through more indirect channel. Furthermore, MNEs' philanthropic giving to foreign countries increase with the intensity of FCPA enforcement in the foreign country. In cross-sectional analyses, I show that the effect of initial FCPA enforcement on philanthropic giving to foreign countries is stronger for MNEs that operate in sin businesses (alcohol, gambling, tobacco, firearms, military, and nuclear power), and in host countries with a higher corruption level before the FCPA enforcement. Overall, my findings are consistent with the conjecture that foreign giving is likely to be employed by MNEs to overcome the difficulties they face in operating in a foreign country after the initial FCPA enforcement takes place in that country, which suggests that the FCPA enforcement has a significant impact on corporate philanthropic decisions.