Self-regulation with Conflicting Stakeholders: Corruption, Disclosure, and Performance in Extractive Industries

We study self-regulation, a non-market strategy firms use to reduce pressure from activists, in the context of the payment transparency movement in extractive industries. This movement seeks to reduce corruption by promoting disclosure of oil companies’ payments to host governments but often generates a tension between activists that desire transparency and host governments that oppose it. We show that firms are more likely to join the Extractive Industries Transparency Initiative (EITI), an NGO promoting transparency, if they invest in countries where conflict between activists and governments is less intense and if they have stronger bargaining power. We find that EITI-member firms are more transparent, and when legislatures mandated transparency, they became more competitive. We also find local perceptions of corruption fell in areas close to EITI-member firms’ operation.