On the Nature of the Reputational Penalty for Corporate Crime: Evidence
AbstractRecent literature on optimal sanctions for corporations has focused on coordination and refinement of criminal, civil, and market-based sanctions. This paper contributes to emerging evidence on the reputational penalties that public corporations pay for federal crimes. First, it is shown that offenses harming only private parties and not government tend to be addressed through civil or market-based and not criminal sanctions. Second, when criminal allegations do arise, they are often surrounded by reports of terminated or suspended customer relationships and of management or employee turnover. These reports are more frequent if damaged parties are customers, as in fraud, than if they are third parties, as in environmental crime, and if stock prices decline significantly at the first news of crime. All of these features are consistent with characterizations of reputational penalties found in the literature. Findings on the nonatomistic nature of damaged parties suggest directions for future research. Copyright 1999 by the University of Chicago.
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Bibliographic InfoArticle provided by University of Chicago Press in its journal Journal of Law & Economics.
Volume (Year): 42 (1999)
Issue (Month): 1 (April)
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- Jackson, Howell E. & Roe, Mark J., 2009. "Public and private enforcement of securities laws: Resource-based evidence," Journal of Financial Economics, Elsevier, vol. 93(2), pages 207-238, August.
- Karpoff, Jonathan M. & Scott Lee, D. & Martin, Gerald S., 2008. "The consequences to managers for financial misrepresentation," Journal of Financial Economics, Elsevier, vol. 88(2), pages 193-215, May.
- Paolo Polidori & Désirée Teobaldelli, 2012. "Corporate Criminal Liability and Optimal Behavior by Firms.Internal Monitoring Devices versus Managerial Incentives," Working Papers 1216, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2012.
- Armour, John & Mayer, Colin & Polo, Andrea, 2010. "Regulatory Sanctions and Reputational Damage in Financial Markets," CEPR Discussion Papers 8058, C.E.P.R. Discussion Papers.
- Sanjai Bhagat & Roberta Romano, 2001. "Event Studies and the Law - Part I: Technique and Corporate Litigation," Yale School of Management Working Papers amz2475, Yale School of Management, revised 01 Jan 2002.
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