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

Increasingly, firms are under pressure to take responsibility for the externalities their business activities generate. To avoid being targeted by activists, firms may engage in self-regulation. We study this phenomenon in the context of the payment transparency movement in extractive industries. This movement seeks to reduce corruption by promoting disclosure of oil and gas firms’ payments to host governments but often generates a tension between activists that desire transparency and host governments that may oppose it. We show that firms are more likely to join the Extractive Industries Transparency Initiative (EITI), a multi-stakeholder initiative promoting payment transparency, where the rivalry between activists and host governments is less intense, if they have stronger bargaining power, and when they come from home countries with higher standards. We find that EITI-member firms have better transparency performance, and that, when home-country legislatures mandated transparency, they became more competitive than non-self-regulated firms. Finally, we examine geo-coded survey data and find that local perceptions of corruption fell in areas close to EITI-member firms’ new investments, suggesting that the self-regulation initiative generated positive social outcomes