To control or to compromise? The prominence of chief compliance officer and foreign corrupt practices act violation

• Published in: The Journal of corporate accounting & finance Vol. 32; no. 2; pp. 114 - 128
• Main Authors: Liu, Chenyong, Xu, Chunhao, Liu, Zhenfeng
• Format: Journal Article
• Language: English
• Published: Hoboken Wiley Periodicals Inc 01.04.2021
• Subjects: Audit fees; chief compliance officer; Compliance; Corporate officers; foreign corrupt practices act; Foreign Corrupt Practices Act 1977-US; Scandals
• ISSN: 1044-8136; 1097-0053
• DOI: 10.1002/jcaf.22491

We investigate the influence of chief compliance office (CCO) prominence in the corporate management team on FCPA violation and audit fees. Based on the compliance function leader's position seniority, we find that a CCO's position rank is positively associated with the propensity of FCPA violation. It indicates that promoting CCO in the firm can facilitate more aggressive compliance policies—it is a “compromise” instead of a “control.” We also find that CCO prominence is positively associated with audit fees even without an FCPA violation happening, which implies that auditors could fully perceive the potential risks embedded in the compliance chief's promotion. The results of this study can be of interest to audit practitioners as well as regulators to better monitor the firms with higher FCPA violation risks.