Policeman for the World: U.S. Enforcement of Foreign Corruption Regulation and Corporate Investment Policies

52 Pages Posted: 1 Apr 2019

See all articles by Hans Bonde Christensen

Hans Bonde Christensen

University of Chicago - Booth School of Business

Mark G. Maffett

University of Chicago - Booth School of Business

Thomas Rauter

University of Chicago - Booth School of Business

Date Written: March 8, 2019

Abstract

We provide evidence on the determinants, targets, and consequences of U.S. enforcement of the Foreign Corrupt Practices Act (FCPA). Both U.S. companies and foreign companies under U.S. jurisdiction headquartered in countries that agree to increase cooperation with U.S. regulators (“FCR” firms) experience an increase in FCPA prosecutions in the mid-2000s, particularly for violations of the Act’s accounting provision. Following this increase in enforcement, FCR firms reduce direct investment in corrupt countries; additionally, there is no evidence that non-FCR firms offset this reduction. When acquiring a firm in a corrupt country, FCR firms increase the length of their due diligence and the likelihood of disclosing an accounting advisor. Overall, our evidence highlights (i) the central role of the U.S. in the worldwide enforcement of foreign corruption regulation, (ii) the importance of regulatory cooperation and accounting controls in detecting corrupt practices and facilitating enforcement actions, and (iii) the significant impact of U.S. anti-corruption regulation on corporate investment in corrupt countries.

Keywords: Foreign Corruption Regulation; Enforcement; Foreign Corrupt Practices Act (FCPA); Foreign Direct Investment; Mergers and Acquisitions; Internal Controls

JEL Classification: F50; F60; K2; M4; O1

Suggested Citation

Christensen, Hans Bonde and Maffett, Mark G. and Rauter, Thomas, Policeman for the World: U.S. Enforcement of Foreign Corruption Regulation and Corporate Investment Policies (March 8, 2019). Available at SSRN: https://ssrn.com/abstract=3349272 or http://dx.doi.org/10.2139/ssrn.3349272

Hans Bonde Christensen

University of Chicago - Booth School of Business ( email )

5807 South Woodlawn Avenue
Chicago, IL 60637
United States

Mark G. Maffett (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Thomas Rauter

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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