We examine how bribes affect corporate performance using a quasi-natural identification strategy. Specifically, we exploit the 2016 enactment of the Improper Solicitation and Graft Act in Korea (also known as Kim Young-ran Act) which limits firms’ bribery to public servants as an exogenous shock. We find that a firm’s level of bribery activities, proxied by its entertainment-related expenses, has a negative impact on its performance. In particular, firms that cut down on these expenses following the law’s enactment are found to exhibit a significant improvement in performance. Overall, our findings provide convincing evidence that bribery impairs firm performance.

 JEL classification: D73, G32, G38
Keywords: bribes, anti-graft law, firm performance, regulation, entertainment expense