The Accounting Review Vol. 97 No. 5 2022
Policeman for the World: The Impact of Extraterritorial FCPA Enforcement on Foreign Investment and Internal Controls
Abstract
We show that a mid-2000s increase in extraterritorial enforcement of the U.S. Foreign Corrupt Practices Act (FCPA), characterized by greater international regulatory cooperation and more frequent use of the FCPA's accounting provisions, has a significant deterrent effect on foreign direct investment in high-corruption-risk countries. The decrease in investment is at least as large for non-U.S. as for U.S. firms, suggesting that widespread extraterritorial enforcement helps to create a level foreign investment playing field. Firms under U.S. jurisdiction with fundamental characteristics that make it more difficult to maintain effective internal controls invest less in high-corruption-risk countries after the FCPA enforcement increase, suggesting regulatory compliance costs play a role in deterring investment. Consistent with investments in accounting systems being one way, firms limit enforcement risk when investing in high-corruption-risk countries, firms pursuing new investments spend more time evaluating potential targets, and firms with existing investments report fewer restatements related to unintentional errors.
- DOI
- 10.2308/tar-2020-0564
- Volume
- 97
- Issue
- 5
- Pages
- 189-219
- Language
- en
- Sources
- openalex bibtex:phds-export.bib crossref