The Role of Managerial Ability in Bribery and Operational Performance: Evidence from FCPA Violations

ABSTRACT This study examines factors influencing bribery activities that violate the United States’ Foreign Corrupt Practices Act (FCPA) of 1977 and assesses the operational consequences of such activities. Leveraging the managerial power approach and supported by the Peter Principle, we investigate how managerial ability associates with bribery. The results suggest that bribery occurs in firms overseen by managers of reasonably high ability, but the highest ability managers deter such corrupt practices. We also find that bribery substitutes for managerial ability in the pursuit of sales goals and that bribery negates the positive impact of managerial ability on future operational performance. Cross-sectional tests indicate these nonlinear results are most pronounced among firms with Big 4 auditors and that FCPA violations are associated with the purpose of sale generation. Data availability: Data are available from the public sources cited in the text. JEL Classifications: M41.