Voluntary, Self-Regulatory, and Mandatory Disclosure of Oil and Gas Company Payments to Foreign Governments

by Paul M. Healy and George Serafeim

Overview — Throughout its history the oil and gas industry has been vulnerable to expropriation and corruption. To this day, oil and gas firms provide very limited voluntary disclosure on payments to host governments, and that pattern has not changed materially over time. This paper shows that industry-level self-regulation may be effective in enhancing transparency when individual firms are reluctant to voluntarily disclose payments.

Author Abstract

Transparency advocates argue that disclosure of oil and gas company payments to host governments for natural resources is a public good, helping to reduce corruption and increase accountability in resource rich countries. Yet we find a very low frequency of voluntary disclosures of payments to host governments by oil and gas firms, and negative stock price reactions for affected firms at the announcement of regulations mandating disclosure. This suggests that sample firm managers and their investors perceive that there are private costs of such voluntary disclosures, contributing to continued low transparency and weak governance in resource rich countries. However, we document that industry self-regulation has generated information to substitute for the gap in voluntary company disclosure. We also find some evidence that these disclosures are accompanied by lower country corruption ratings, suggesting that collective action may be an effective way for the industry to manage the private costs of disclosure and respond to public pressure to improve governance in resource rich countries.