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Corporate Criminal Liability and Optimal Behavior by Firms.Internal Monitoring Devices versus Managerial Incentives

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Author Info

  • Paolo Polidori

    ()
    (Department of Law, University of Urbino “Carlo Bo”)

  • Désirée Teobaldelli

    ()
    (Department of Law, University of Urbino “Carlo Bo”)

Abstract

Corporate criminal liability legislation has been the subject of a widespread debate around the world in response to the financial scandals of the early 2000s. The existing legal regimes en- tail compliance requirements, such as internal monitoring mechanisms, with the aim of inducing firms to detect the wrongful conduct of their agents. We develop an analytical framework to address when and to what extent firms may find convenient to adopt these regulatory devices. We conclude that more productive firms and those operating in sectors where managers have more opportunities to undertake criminal activities are more likely to prevent such activities (through monitoring or the payment of e¢ ciency wages). When the potential returns of ille- gal activities are high or when the firms are large, implementing internal monitoring devices may be optimal, while smaller firms should generally prefer the payment of efficiency wages to prevent crimes by managers.

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File URL: http://www.econ.uniurb.it/RePEc/urb/wpaper/WP_12_16.pdf
File Function: First version, 2012
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Bibliographic Info

Paper provided by University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini in its series Working Papers with number 1216.

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Length: 19 pages
Date of creation: 2012
Date of revision: 2012
Handle: RePEc:urb:wpaper:12_16

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Web page: http://www.econ.uniurb.it/
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Keywords: Corporate Governance; Law Enforcement; Compliance; Deterrence; Regulation.;

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  1. John C. Coates IV, 2007. "The Goals and Promise of the Sarbanes-Oxley Act," Journal of Economic Perspectives, American Economic Association, vol. 21(1), pages 91-116, Winter.
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  6. Alexander, Cindy R, 1999. "On the Nature of the Reputational Penalty for Corporate Crime: Evidence," Journal of Law and Economics, University of Chicago Press, vol. 42(1), pages 489-526, April.
  7. Vidhi Chhaochharia & Yaniv Grinstein, 2007. "Corporate Governance and Firm Value: The Impact of the 2002 Governance Rules," Journal of Finance, American Finance Association, vol. 62(4), pages 1789-1825, 08.
  8. Roger Bowles & Michael Faure & Nuno Garoupa, 2008. "The scope of criminal law and criminal sanctions: An economic view and policy implications," Working Papers 2008-03, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales.
  9. Shavell, Steven, 1997. "The optimal level of corporate liability given the limited ability of corporations to penalize their employees," International Review of Law and Economics, Elsevier, vol. 17(2), pages 203-213, June.
  10. Zhang, Ivy Xiying, 2007. "Economic consequences of the Sarbanes-Oxley Act of 2002," Journal of Accounting and Economics, Elsevier, vol. 44(1-2), pages 74-115, September.
  11. Alexander, Cindy R & Arlen, Jennifer & Cohen, Mark A, 1999. "Regulating Corporate Criminal Sanctions: Federal Guidelines and the Sentencing of Public Firms," Journal of Law and Economics, University of Chicago Press, vol. 42(1), pages 393-422, April.
  12. Ganuza, Juan Jose & Gomez, Fernando, 2007. "Should we trust the gatekeepers?: Auditors' and lawyers' liability for clients' misconduct," International Review of Law and Economics, Elsevier, vol. 27(1), pages 96-109, March.
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