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Managers’ use of language in corrupt firms’ financial disclosures: Evidence from FCPA violators

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  • Jaeschke, Reemda
  • Lopatta, Kerstin
  • Yi, Cheong

Abstract

This paper explores management’s use of language in financial disclosures of corrupt firms by looking at a sample of firms that have been prosecuted for violating the Foreign Corrupt Practices Act (FCPA). We find that the management of FCPA violators use more negative, less litigious, more complex and less conservative language when disclosing financials than non‐violators. The language effect prior to an FCPA prosecution is driven by firms with low corporate governance performance. By contrast, firms with high corporate governance use less complex and more conservative language before an FCPA prosecution than firms with low corporate governance performance. Furthermore, we find that after an FCPA prosecution the language becomes less litigious and complex than before the FCPA litigation.

Suggested Citation

  • Jaeschke, Reemda & Lopatta, Kerstin & Yi, Cheong, 2018. "Managers’ use of language in corrupt firms’ financial disclosures: Evidence from FCPA violators," Scandinavian Journal of Management, Elsevier, vol. 34(2), pages 170-192.
    • Handle: RePEc:eee:scaman:v:34:y:2018:i:2:p:170-192
    DOI: 10.1016/j.scaman.2018.01.004
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    More about this item

    Keywords

    FCPA; Corruption; Text analysis; Language; Tone;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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