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How to Deter Financial Misconduct if Crime Pays?

Author

Listed:
  • Karol Marek Klimczak

    (Lodz University of Technology)

  • Alejo José G. Sison

    (University of Navarra Campus Universitario)

  • Maria Prats

    (Northwestern University)

  • Maximilian B. Torres

    (Busch School of Business, The Catholic University of America)

Abstract

Financial misconduct has come into the spotlight in recent years, causing market regulators to increase the reach and severity of interventions. We show that at times the economic benefits of illicit financial activity outweigh the costs of litigation. We illustrate our argument with data from the US Securities and Exchanges Commission and a case of investment misconduct. From the neoclassical economic paradigm, which follows utilitarian thinking, it is rational to engage in misconduct. Still, the majority of professionals refrain from misconduct, foregoing economic rewards. We suggest financial activity could be reimagined taking into account intrinsic and prosocial motivations. A virtue ethics framework could also be applied, linking financial behavior to the quest for moral excellence and shared flourishing. By going beyond utilitarian thinking and considering alternative models, we offer a fuller account of financial behavior and a better perspective from which to design deterrence methods.

Suggested Citation

  • Karol Marek Klimczak & Alejo José G. Sison & Maria Prats & Maximilian B. Torres, 2022. "How to Deter Financial Misconduct if Crime Pays?," Journal of Business Ethics, Springer, vol. 179(1), pages 205-222, August.
    • Handle: RePEc:kap:jbuset:v:179:y:2022:i:1:d:10.1007_s10551-021-04817-0
    DOI: 10.1007/s10551-021-04817-0
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    2. Abhishek Sharma & Chandana Hewege & Chamila Perera, 2022. "Violations of CSR Practices in the Australian Financial Industry: How Is the Decision-Making Power of Australian Women Implicated?," Sustainability, MDPI, vol. 15(1), pages 1-21, December.

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