IDEAS home Printed from https://ideas.repec.org/a/oup/oxford/v21y2005i2p198-211.html
   My bibliography  Save this article

A Theory of Corporate Scandals: Why the USA and Europe Differ

Author

Listed:
  • John C. Coffee

Abstract

A wave of financial irregularity in the USA in 2001--2 culminated in the Sarbanes--Oxley Act. A worldwide stockmarket bubble burst over this same period, with the actual market decline being proportionately more severe in Europe. Yet, no corresponding wave of financial scandals involving a similar level of companies occurred in Europe. Given the higher level of public and private enforcement in the USA for securities fraud, this contrast seems perplexing. This paper submits that different kinds of scandals characterize different systems of corporate governance. In particular, dispersed ownership systems of governance are prone to the forms of earnings management that erupted in the USA, but concentrated ownership systems are much less vulnerable. Instead, the characteristic scandal in such systems is the appropriation of private benefits of control. This paper suggests that this difference in the likely source of, and motive for, financial misconduct has implications both for the utility of gatekeepers as reputational intermediaries and for design of legal controls to protect public shareholders. The difficulty in achieving auditor independence in a corporation with a controlling shareholder may also imply that minority shareholders in concentrated ownership economies should directly select their own gatekeepers. Copyright 2005, Oxford University Press.

Suggested Citation

  • John C. Coffee, 2005. "A Theory of Corporate Scandals: Why the USA and Europe Differ," Oxford Review of Economic Policy, Oxford University Press, vol. 21(2), pages 198-211, Summer.
  • Handle: RePEc:oup:oxford:v:21:y:2005:i:2:p:198-211
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chilosi, Alberto & Damiani, Mirella, 2007. "Stakeholders vs. shareholders in corporate governance," MPRA Paper 2334, University Library of Munich, Germany.
    2. Jackie Krafft & Yiping Qu & Francesco Quatraro & Jacques-Laurent Ravix, 2014. "Corporate governance, value and performance of firms: new empirical results on convergence from a large international database," Industrial and Corporate Change, Oxford University Press, vol. 23(2), pages 361-397.
    3. Jackie Krafft & Yiping Qu & Jacques-Laurent Ravix, 2011. "Gouvernance d'entreprise et performances sectorielles : une réévaluation de la fiabilité des scores et des mesures de bonne gouvernance," Economie & Prévision, La Documentation Française, vol. 0(1), pages 145-158.
    4. Ilona Bažantová, 2015. "The Emergence And Development Of Corporate Governance As An Economic And Institutional Phenomenon," Economy & Business Journal, International Scientific Publications, Bulgaria, vol. 9(1), pages 167-178.
    5. Roberto Tamborini, 2016. "The ''obscure puzzle'' of management control. Any remedy?," DEM Working Papers 2016/02, Department of Economics and Management.
    6. Gabbioneta, Claudia & Greenwood, Royston & Mazzola, Pietro & Minoja, Mario, 2013. "The influence of the institutional context on corporate illegality," Accounting, Organizations and Society, Elsevier, vol. 38(6), pages 484-504.
    7. A. Greenfield & Carolyn Norman & Benson Wier, 2008. "The Effect of Ethical Orientation and Professional Commitment on Earnings Management Behavior," Journal of Business Ethics, Springer, vol. 83(3), pages 419-434, December.
    8. Tomáš Buus, 2008. "Performance of Quoted and Non-quoted Companies in the Europe," European Financial and Accounting Journal, University of Economics, Prague, vol. 2008(4), pages 45-69.
    9. repec:hal:wpaper:hal-00786664 is not listed on IDEAS
    10. Tim Bush & Shyam Sunder & Stella Fearnley, 2007. "Auditor Liability Reforms in the UK and the US: A Comparative Review," Yale School of Management Working Papers amz2575, Yale School of Management.
    11. Shamsul Nahar Abdullah & Nor Zalina Mohamad Yusof & Mohamad Naimi Mohamad Nor, 2010. "Financial restatements and corporate governance among Malaysian listed companies," Managerial Auditing Journal, Emerald Group Publishing, vol. 25(6), pages 526-552, June.
    12. Ma, Liangbo & Ma, Shiguang & Tian, Gary, 2016. "Family control, accounting misstatements, and market reactions to restatements: Evidence from China," Emerging Markets Review, Elsevier, vol. 28(C), pages 1-27.
    13. Michael Dietrich & Jolian McHardy & Abhijit Sharma, 2010. "Firm corruption in the presence of an auditor," Working Papers 2010016, The University of Sheffield, Department of Economics, revised Jul 2010.
    14. Giulio Greco & Silvia Ferramosca & Luciano Marchi, 2015. "Governance codes and types of issuer: a global study," International Journal of Business Governance and Ethics, Inderscience Enterprises Ltd, vol. 10(1), pages 28-56.
    15. Jackie Krafft & Yiping Qu & Jacques-Laurent Ravix, 2008. "Corporate governance, industry dynamics and firms performance on the stock market," Post-Print hal-00203544, HAL.
    16. Elvio Accinelli & Laura Policardo & Edgar J. Sánchez Carrera, 2012. "On the Dynamics and Effects of Corruption on Environmental Protection," Documentos de Trabajo (working papers) 1312, Department of Economics - dECON.
    17. Antonio Zanotti, 2012. "La governance nelle imprese cooperative. Il caso delle cooperative aderenti a Legacoopservizi," Euricse Working Papers 1240, Euricse (European Research Institute on Cooperative and Social Enterprises).
    18. repec:eee:tefoso:v:125:y:2017:i:c:p:309-320 is not listed on IDEAS
    19. Steve Sauerwald & J. (Hans) Van Oosterhout & Marc Van Essen, 2016. "Expressive Shareholder Democracy: A Multilevel Study of Shareholder Dissent in 15 Western European Countries," Journal of Management Studies, Wiley Blackwell, vol. 53(4), pages 520-551, June.
    20. repec:eee:iburev:v:27:y:2018:i:1:p:21-33 is not listed on IDEAS
    21. Shripad Pendse, 2012. "Ethical Hazards: A Motive, Means, and Opportunity Approach to Curbing Corporate Unethical Behavior," Journal of Business Ethics, Springer, vol. 107(3), pages 265-279, May.
    22. Rustam, Sehrish & Rashid, Kashif & Zaman, Khalid, 2013. "The relationship between audit committees, compensation incentives and corporate audit fees in Pakistan," Economic Modelling, Elsevier, vol. 31(C), pages 697-716.
    23. Doukakis, Leonidas C. & Papanastasopoulos, Georgios A., 2014. "The accrual anomaly in the U.K. stock market: Implications of growth and accounting distortions," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 32(C), pages 256-277.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:oxford:v:21:y:2005:i:2:p:198-211. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press) or (Christopher F. Baum). General contact details of provider: https://academic.oup.com/oxrep .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.