Publicly traded PMSCs and scandals in Iraq: Does ownership serve as a deterrent?

Dr. Elizabeth Radziszewski

As profit-oriented entities, private military and security companies (PMSCs) may undermine accountability to the client. We examine how the differences in PMSCs’ corporate ownership affect two legal dimensions of corporate social responsibility—commitment to international human rights laws and anti-fraud practices. Publicly traded PMSCs adopt a more transparent business structure that makes future misdemeanor costly. Greater media scrutiny and growing shareholder interest in companies’ ‘good’ reputation should limit involvement in human rights abuses and incentivize avoidance of fraudulent behavior due to the presence of reputational costs. Using novel data on PMSCs’ alleged misconduct in the area of fraud and human rights abuses in Iraq from 2003 to 2019, we show that publicly traded PMSCs are less likely to engage in both types of crimes than private companies. This shows that publicly traded PMSCs’ commitment to corporate social responsibility is a credible signal of greater accountability.