Do Financial Analysts Care About FCPA Violations?
International Journal of Accounting, Auditing and Performance Evaluation, Forthcoming
Posted: 23 Jan 2018 Last revised: 11 Nov 2019
Date Written: January 16, 2018
In this paper, we examine 12,954 equity research reports for 24 firms that are subject to enforcement actions by the U.S. Securities and Exchange Commission (SEC) for violations of the Foreign Corrupt Practices Act (FCPA). We search the text of the equity research reports for a number of FCPA-related keywords and identify 1,079 reports, where an analyst considers the SEC investigation an important issue. Our multivariate empirical analysis shows that financial analysts are more likely to be interested in incidents of FCPA violations, if the fines imposed to the firms by the SEC, DOJ (Department of Justice), and other U.S. agencies represent substantial components of their revenues, operating income, and market capitalization. We also find that the interest of financial analysts in these cases increases when the subject firms are relatively small with poor profitability. We offer illustrative examples of how financial analysts actually refer to the FCPA violations in their equity research reports. We believe that this study contributes to the relevant literature by highlighting the importance and implications of the FCPA statute for capital market participants.
Keywords: Foreign Corrupt Practices Act (FCPA), Securities and Exchange Commission (SEC), Bribery, Financial Analysts, and Equity Research Reports
JEL Classification: G24, M41
Suggested Citation: Suggested Citation