Does Political Connection Mitigate the Sanctions for Corruptions? Evidence From the Foreign Corrupt Practices Act (FCPA)

ABSTRACT This paper examines the effect of political connection on sanctions for violations of the US Foreign Corrupt Practices Act (FCPA). Using a sample of revealed FCPA sanctions and two alternative proxies for US firms’ political connections, we find a negative association between political connection and the severity of sanctions, an effect that is more pronounced as the size of bribes increases. In addition, the identity of prosecutors is less likely to be disclosed as political connections become stronger. Further, firms experiencing higher penalties appear to strengthen their political connections after the FCPA sanctions. Finally, we conduct a number of tests to address alternative explanations and endogeneity concerns. Overall, our findings are consistent with firms using their political influence to obtain favorable treatment in FCPA enforcements and therefore provide important policy‐making implications.