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Corporate crimes and innovation: Evidence from US financial firms

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  • Unsal, Omer

Abstract

This study explores how corporate crimes affect innovation. We utilize a large sample of US financial firms between 2002 and 2019, along with violations and misconducts. We find that fraudulent financial firms innovate fewer new products, services, and patents. The negative association between corporate wrongdoings and innovation is more prominent for small and risky financial firms. Further analysis documents that misconduct generates negative market reaction and damages firms' business expansions. These findings between corporate violations and operating performance are among the first empirical evidence for the finance industry where misconduct is widespread. Our results offer new insights into the real impact of unethical behaviors on financial firms' innovation performance. From a policy perspective, our study suggests how reputational damage can impede firms’ technological progress.

Suggested Citation

  • Unsal, Omer, 2023. "Corporate crimes and innovation: Evidence from US financial firms," Economic Modelling, Elsevier, vol. 120(C).
    • Handle: RePEc:eee:ecmode:v:120:y:2023:i:c:s0264999322004205
    DOI: 10.1016/j.econmod.2022.106183
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    More about this item

    Keywords

    Financial institutions and services; Innovation and invention; Criminal law; Litigation process;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • K14 - Law and Economics - - Basic Areas of Law - - - Criminal Law
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process

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