Sanctions, Reputational Losses and Salience
Abstract
We evaluate the enforcement of sanctions regulations by the United States regulatory agency, the Office of Foreign Assets Control (OFAC), on a penalized company’s reputational losses. OFAC has a public website, which announces a company’s violation/violations and penalty only after it has successfully completed its investigations. We document that OFAC penalty announcements were “news” during 2003-2023. When the OFAC agency was salient (i.e. frequently searched on the internet) an above median penalty was associated reputational losses that were 1.1, 1.9, 3.0 and 6.2 times the size of a penalty during market windows of one, two, five and nine trading days around the announcement, respectively. However, there were no reputational losses when salience was low, even when large penalties are included.
