Impact of anti-corruption legislation on corporate entertainment expense and performance

Abstract

The impact of institutional change on organizations is inherently contingent upon firm-and institutional-level heterogeneities. We examine this by suggesting a game-theoretic model to analyze how firms in different conditions manage regulative pressures and how this impacts their performance. Based on Korean listed firms during 2015–2017, we discovered that firms responded to new anti-corruption legislation by reducing entertainment expenses; this trend is more prominent among larger firms and firms in regulated industries. We also note the financial consequence of this responsive nonmarket strategy, involving the function of firms’ industry-level positions. This study provides important managerial implications and research directions.