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

See all articles by Apostolos Ballas

Apostolos Ballas

Athens University of Economics and Business - Department of Accounting and Finance

Efthimios Demirakos

Athens University of Economics and Business - Department of Accounting and Finance

Date Written: January 16, 2018

Abstract

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

Ballas, Apostolos A. and Demirakos, Efthimios, Do Financial Analysts Care About FCPA Violations? (January 16, 2018). International Journal of Accounting, Auditing and Performance Evaluation, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3102952

Apostolos A. Ballas

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission Street
Athens, GR-10434
Greece
+302108203463 (Phone)

Efthimios Demirakos (Contact Author)

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission Street
GR-104 34 Athens
Greece

HOME PAGE: http://www.aueb.gr/en/faculty_page/demirakos-efthimios

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