In the Aftermath of Foriegn Bribery: The Ripple Effects of Anti-Corruption Enforcement on U.S. Multinational Firms Open Access

Jia, Weishi (2017)

Permanent URL:


Corporate corruption has long been recognized as a global issue that victimizes honest businesses and impedes long-term social and economic development. The U.S. Foreign Corrupt Practices Act (FCPA) prohibits firms from offering bribes to foreign officials to obtain or retain business. Recent years have witnessed a significant increase in the intensity of FCPA enforcement, which raises concerns that FCPA scrutiny is imposing large costs on U.S. firms that operate globally. This paper studies the ripple effects of FCPA enforcement and provides empirical evidence on how it affects U.S. multinational firms. In particular, the paper focuses on (1) the effects on FCPA-targeted firms that go beyond settlement amounts, and (2) the effects on U.S. multinational firms in general that go beyond FCPA-targeted firms. For FCPA-targeted firms, I find that both the stock market and financial analysts react negatively to FCPA enforcement announcements, consistent with an anticipated increase in compliance costs and potential loss of foreign sales. Targeted firms also pay higher audit and non-audit fees after being involved in FCPA cases, reflecting increased audit risks and audit effort and a greater need for advisory services provided by accounting firms. For U.S. multinational firms in general, I find that FCPA enforcement has a strong deterrent effect on their investment in foreign markets, consistent with these firms taking FCPA risk into account when making foreign investment decisions. Overall, these findings suggest that FCPA enforcement creates a ripple effect that extends to various aspects of targeted firms and non-targeted firms. This ripple effect of anti-corruption enforcement on multinational firms warrants attention from policymakers, law enforcement agencies, and corporate executives.

Table of Contents

Table of Contents

I. INTRODUCTION ------------------------------------------------------------------------ 1

II. BACKGROUND ON THE FCPA ------------------------------------------------------6

1. FCPA Fundamentals -----------------------------------------------------------------6

2. FCPA Enforcement ------------------------------------------------------------------8


1. The Effect of FCPA Enforcement on Targeted Firms --------------------------9

2. The Effect of FCPA Enforcement on U.S. Foreign Investment --------------12

IV. DATA, SAMPLE, AND DESCRIPTIVE STATISTICS ---------------------------16

1. Data and Sample ---------------------------------------------------------------------17

2. Descriptive Statistics ----------------------------------------------------------------17

V. EMPIRICAL DESIGN AND RESULTS ---------------------------------------------19

1. Results: The Effect of FCPA Enforcement on Targeted Firms ---------------19

2. Results: The Effect of FCPA Enforcement on U.S. Foreign Investment ----21

a) Industry Level Test ------------------------------------------------21

b) Host Country Level Test ------------------------------------------23

VI. CONCLUSION AND DISCUSSION -------------------------------------------------25

VII. REFERENCES ---------------------------------------------------------------------------29

VIII. APPENDIX A: VARIABLE DEFINITIONS ----------------------------------------32

IX. FIGURES AND TABLES --------------------------------------------------------------34

Table of Contents for Figures and Tables

FIGURES ------------------------------------------------------------------------------------------------34

Figure 1: The Ripple Effects of FCPA Enforcement on U.S. Multinational Firms---34

Figure 2: Frequency of Resolved FCPA Cases by Enforcement Year------------------35

TABLES -------------------------------------------------------------------------------------------------36

Table 1: Sample Selection -------------------------------------------------------------------36

Table 2: Description of FCPA Enforcement Activities ----------------------------------37

Table 3: Abnormal Stock Returns around FCPA Announcements ---------------------41

Table 4: Analyst Forecast Revisions around FCPA Announcements ------------------42

Table 5: Audit Fees, Non-audit Fees, and FCPA Enforcement -------------------------43

Table 6: U.S. Foreign Direct Investment (FDI) and FCPA Enforcement -Industry Level Tests ----46

Table 7: U.S. FDI and FCPA Enforcement-Host Country Level Tests --------------- 48

About this Dissertation

Rights statement
  • Permission granted by the author to include this thesis or dissertation in this repository. All rights reserved by the author. Please contact the author for information regarding the reproduction and use of this thesis or dissertation.
  • English
Research Field
Committee Chair / Thesis Advisor
Committee Members
Last modified

Primary PDF

Supplemental Files