CEO/CFO Resignations and the Market’s Reaction to Violations of the Foreign Corruption Practices Act

Abstract

I examine CEOs’ and CFOs’ forced resignations after violations of the Foreign Corruption Practices Act (FCPA). My findings show that firms that adhere to the FCPA (FCPA firms) discipline CEOs and CFOs after violations of the act. Further, CEOs and CFOs are likely to resign after the SEC identifies them as perpetrators in these violations, and the SEC bars more CEOs and CFOs of firms that commit accounting fraud (FRAUD firms) than those of FCPA firms. And, fewer CEOs than CFOs find a new position within five years after their resignation. Further, the market reacts significantly to the FCPA firms’ announcements of bribery violations but does not react to the 8-K resignations of their CEOs or CFOs. In comparison, the magnitudes of the reactions to FRAUD firms’ announcements of accounting fraud and the CEOs’ or CFOs’ 8-K resignations are higher than those of FCPA firms.

Keywords: Foreign Corruption Practices Act, FCPA, CEO/CFO Resignations, Market

JEL Classification: M41, M48, G34, G14