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Former members of the U.S. Congress and fraud enforcement: Does it help to have politically connected friends on the board?

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  • Kuvvet, Emre
  • Maskara, Pankaj Kumar

Abstract

We investigate the relationship between the presence of former members of the U.S. Congress on corporate boards and fraud enforcement. We find that corporate fraud in companies with such members on the board stays undetected longer. When caught, such companies pay lower penalties. The appointment of former Congressional members to the board also lessens the probability of the company being subjected to Accounting and Auditing Enforcement Releases by the SEC after they face class-action lawsuits for fraudulent activities. Our results remain robust to the presence of other means of making political connections, such as lobbying, hiring revolving-door lobbyists, and contributing to political campaigns.

Suggested Citation

  • Kuvvet, Emre & Maskara, Pankaj Kumar, 2018. "Former members of the U.S. Congress and fraud enforcement: Does it help to have politically connected friends on the board?," The Quarterly Review of Economics and Finance, Elsevier, vol. 70(C), pages 77-89.
    • Handle: RePEc:eee:quaeco:v:70:y:2018:i:c:p:77-89
    DOI: 10.1016/j.qref.2018.04.011
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    More about this item

    Keywords

    Politically connected board; Former members of the U.S. Congress; Fraud enforcement; Fraud detection;
    All these keywords.

    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior

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