Global Firms and Global Sheriffs? Why Territory Matters for Extraterritorial Enforcement of Regulatory Regimes

05 October 2021, Version 1
This content is an early or alternative research output and has not been peer-reviewed at the time of posting.

Abstract

International regimes demand states regulate private companies to ensure better governance of markets. Although global firms can evade regulations creating complex ownership structures, a few countries enforce their laws extraterritorially. They prosecute firms regardless of their nationality, like “global sheriffs”. However, these countries only prosecute a fraction of the foreign firms under their jurisdiction. I study this phenomenon focusing on US extraterritorial prosecution. I argue that US authorities are more likely to prosecute foreign companies with US investment. Formally, this is no requirement for the application of American regulations. Yet, it exposes a foreign company to the local public opinion. US prosecutors exploit induced reputational cost to obtain cooperation and retrieve information to build a case. My empirics leverage novel firm-level data on law enforcement under the anti-bribery regime. US authorities are 0.26 more likely to investigate a suspect foreign company when it has investment in the US.

Keywords

Regulation
International Regimes
Multinational Companies
Extraterritoriality
Corporate Regulation
Anti-corruption

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