Abstract
This paper examines the impact of violations of export control policy from a multinational enterprise’sperspective. We describe the kinds of regulation in place in the U.S. over the past decade, and identify thecharacteristics of firms who have been caught and fined for violations of export restrictions. Furthermore, weinvestigate the response of shareholders to news regarding trade violations and find that they suffer a statisticallysignificant -1.15% abnormal returns over the three day announcement window. Not surprisingly, we find that thereaction post 9–11 is worse as is the reaction when the export violations occur with countries perceived to becorrupt. We also find that systematic risk and total risk increase for violators following their investigations.Further, any penalty in terms of long run performance for ECA violations is limited to those violations with the“corrupt” countries.
Highlights
Following the attacks on the World Trade Center on September 11, 2001, a tremendous amount of reassessment of American foreign policy has taken place by the U.S citizenry, regulatory institutions, and political participants
Stock price data are taken from Center for Research in Security Prices (CRSP); accounting data from S&P Research Insights
We examine the market reactions to violations of the Export Control Act
Summary
Following the attacks on the World Trade Center on September 11, 2001, a tremendous amount of reassessment of American foreign policy has taken place by the U.S citizenry, regulatory institutions, and political participants. In testimony before the House Subcommittee on Terrorism on July 9, 2009, Arthur Shulman, the General Council for the Wisconsin Project on Nuclear Arms Control, addressed the importance of strong and effective export controls for U.S national security, the necessity of addressing the risks of transshipment and diversion at home and abroad, and the need to improve industry’s ability to police itself It is not always apparent which companies are violating the Export Administration Regulations (EAR). Weatherford’s violations occurred between 2002 and 2007 and included exporting oil and gas equipment to Iran through the UAE, and similar equipment to Cuba via Canada In light of both the need for some export controls and the desire of U.S firms to have the fewest restrictions possible, we believe that this paper uniquely examines the wealth effect on stockholders of violations of export restrictions. Following this are the Results and the Conclusion and suggestions for further research
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