Audit Committee Remedial Actions and Regulatory Outcomes following FCPA Investigations

Abstract

This study examines audit committee (AC) remedial actions in firms investigated for a likely bribery-related violation of the Foreign Corrupt Practices Act (FCPA). Specifically, we study the relation between AC remedial actions and regulatory outcomes of an FCPA investigation. We consider three types of AC remedial actions: AC turnover, adding a newly elected director to the AC, and replacing the AC chair. These actions are not associated with the likelihood of a regulatory investigation concluding in an enforcement action. However, in firms that face enforcement actions, adding a newly elected director is associated with lower monetary penalties, a shorter resolution time, and a lower likelihood of an independent FCPA monitor being required. Additional analyses suggest that these results are driven by firms in which the newly elected director is appointed as the AC chair. Overall, this study adds to the literatures on regulatory cooperation and audit committees.