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Settlement agreement types of federal corporate prosecution in the U.S. and their impact on shareholder wealth

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  • Flore, Christian
  • Kolaric, Sascha
  • Schiereck, Dirk

Abstract

This paper analyzes the shareholder wealth effects of corporate prosecution settlements in the U.S. from 2001 to 2014. We focus on the relative monetary size of the settlement and on deferred prosecution and non-prosecution agreements in contrast to traditional plea agreements. The results show that the settlement of criminal prosecution leads to positive shareholder wealth effects, which may be due to the resolution of any remaining uncertainty with respect to the total settlement amount and lower than expected settlement costs. Stockholders generally view the announcement of plea agreements more positively than the announcement of deferred prosecution and non-prosecution agreements. The likelihood of a certain agreement type is strongly dependent on the crime committed. Moreover, larger firms with better board-related governance structures that have not been criminally prosecuted prior to the settlement are more likely to avoid a criminal conviction.

Suggested Citation

  • Flore, Christian & Kolaric, Sascha & Schiereck, Dirk, 2017. "Settlement agreement types of federal corporate prosecution in the U.S. and their impact on shareholder wealth," Journal of Business Research, Elsevier, vol. 76(C), pages 145-158.
    • Handle: RePEc:eee:jbrese:v:76:y:2017:i:c:p:145-158
    DOI: 10.1016/j.jbusres.2017.03.015
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    Cited by:

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    More about this item

    Keywords

    Corporate misconduct; Legal penalties; Settlements; Shareholder wealth; Event study;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • K10 - Law and Economics - - Basic Areas of Law - - - General (Constitutional Law)
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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