IDEAS home Printed from https://ideas.repec.org/a/ucp/jlawec/v42y1999i1p489-526.html
   My bibliography  Save this article

On the Nature of the Reputational Penalty for Corporate Crime: Evidence

Author

Listed:
  • Alexander, Cindy R

Abstract

Recent 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.

Suggested Citation

  • 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.
  • Handle: RePEc:ucp:jlawec:v:42:y:1999:i:1:p:489-526
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1086/467433
    Download Restriction: Access to the online full text or PDF requires a subscription.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Crafton, Steven M & Hoffer, George E & Reilly, Robert J, 1981. "Testing the Impact of Recalls on the Demand for Automobiles," Economic Inquiry, Western Economic Association International, vol. 19(4), pages 694-703, October.
    2. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters,in: Essays in the Economics of Crime and Punishment, pages 1-54 National Bureau of Economic Research, Inc.
    3. Darby, Michael R. & Lott, John Jr., 1989. "Qualitative information, reputation, and monopolistic competition," International Review of Law and Economics, Elsevier, vol. 9(1), pages 87-103, June.
    4. Agrawal, Anup & Jaffe, Jeffrey F & Karpoff, Jonathan M, 1999. "Management Turnover and Governance Changes following the Revelation of Fraud," Journal of Law and Economics, University of Chicago Press, vol. 42(1), pages 309-342, April.
    5. Fudenberg, Drew & Maskin, Eric, 1986. "The Folk Theorem in Repeated Games with Discounting or with Incomplete Information," Econometrica, Econometric Society, vol. 54(3), pages 533-554, May.
    6. Kreps, David M. & Wilson, Robert, 1982. "Reputation and imperfect information," Journal of Economic Theory, Elsevier, vol. 27(2), pages 253-279, August.
    7. Jarrell, Gregg & Peltzman, Sam, 1985. "The Impact of Product Recalls on the Wealth of Sellers," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 512-536, June.
    8. Peltzman, Sam, 1981. "The Effects of FTC Advertising Regulation," Journal of Law and Economics, University of Chicago Press, vol. 24(3), pages 403-448, December.
    9. Parker, Jeffrey S & Atkins, Raymond A, 1999. "Did the Corporate Criminal Sentencing Guidelines Matter? Some Preliminary Empirical Observations," Journal of Law and Economics, University of Chicago Press, vol. 42(1), pages 423-453, April.
    10. Maksimovic, Vojislav & Titman, Sheridan, 1991. "Financial Policy and Reputation for Product Quality," Review of Financial Studies, Society for Financial Studies, vol. 4(1), pages 175-200.
    11. Mitchell, Mark L & Maloney, Michael T, 1989. "Crisis in the Cockpit? The Role of Market Forces in Promoting Air Travel Safety," Journal of Law and Economics, University of Chicago Press, vol. 32(2), pages 329-355, October.
    12. Karpoff, Jonathan M & Lott, John R, Jr, 1993. "The Reputational Penalty Firms Bear from Committing Criminal Fraud," Journal of Law and Economics, University of Chicago Press, vol. 36(2), pages 757-802, October.
    13. 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.
    14. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
    15. Carl Shapiro, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, Oxford University Press, vol. 98(4), pages 659-679.
    16. Pauly, Mark V, 1987. "Nonprofit Firms in Medical Markets," American Economic Review, American Economic Association, vol. 77(2), pages 257-262, May.
    17. Alexander, C.R. & Cohen, M.A., 1996. "New Evidence on the Origins of Corporate Crime," Papers 96-05, U.S. Department of Justice - Antitrust Division.
    18. Sauer, Raymond D & Leffler, Keith B, 1990. "Did the Federal Trade Commission's Advertising Substantiation Program Promote More Credible Advertising?," American Economic Review, American Economic Association, vol. 80(1), pages 191-203, March.
    19. Lott, John R, Jr, 1992. "An Attempt at Measuring the Total Monetary Penalty from Drug Convictions: The Importance of an Individual's Reputation," The Journal of Legal Studies, University of Chicago Press, vol. 21(1), pages 159-187, January.
    20. Chalk, Andrew, 1986. "Market Forces and Aircraft Safety: The Case of the DC-10," Economic Inquiry, Western Economic Association International, vol. 24(1), pages 43-60, January.
    21. Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-641, August.
    22. Alexander, Cindy R & Reiffen, David, 1995. "Vertical Contracts as Strategic Commitments: How Are They Enforced?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(4), pages 623-649, Winter.
    23. Borenstein, Severin & Zimmerman, Martin B, 1988. "Market Incentives for Safe Commercial Airline Operation," American Economic Review, American Economic Association, vol. 78(5), pages 913-935, December.
    24. Diamond, Douglas W, 1989. "Reputation Acquisition in Debt Markets," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 828-862, August.
    25. Polinsky, A. Mitchell & Shavell, Steven, 1993. "Should employees be subject to fines and imprisonment given the existence of corporate liability?," International Review of Law and Economics, Elsevier, vol. 13(3), pages 239-257, September.
    26. Franklin Allen, 1984. "Reputation and Product Quality," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 311-327, Autumn.
    27. Telser, L G, 1980. "A Theory of Self-enforcing Agreements," The Journal of Business, University of Chicago Press, vol. 53(1), pages 27-44, January.
    28. Jonathan M. Karpoff & D. Scott Lee & Valaria P. Vendrzyk, 1999. "Defense Procurement Fraud, Penalties, and Contractor Influence," Journal of Political Economy, University of Chicago Press, vol. 107(4), pages 809-842, August.
    Full references (including those not matched with items on IDEAS)

    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:ucp:jlawec:v:42:y:1999:i:1:p:489-526. 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: (Journals Division). General contact details of provider: http://www.journals.uchicago.edu/JLE/ .

    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.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with 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.