Negation of Sanctions: The Personal Effect of Political Contributions
AFA 2013 San Diego Meetings Paper
Journal of Financial and Quantitative Analysis, forthcoming
86 Pages Posted: 18 Mar 2012 Last revised: 15 Jun 2022
Date Written: May 6, 2022
Abstract
We show that political contributions are associated with reduced civil and criminal sanctions for fraudulent executives. These managers benefit more from contributions if their firm also gained from the fraud, if they occupy top positions in firms with weak boards, or if they contribute to powerful politicians. Political contributions reduce budgetary resources for government enforcers and lengthen the SEC’s case time-to-resolution. They also facilitate penalty transfer from fraudulent managers to the firm, resulting in their entrenchment and long-term destruction of shareholder value. Our findings highlight an agency cost of political contributions and a mechanism undermining the disciplining effect of regulations.
Keywords: Political contributions; SEC enforcement; DOJ enforcement; fraud; civil and criminal penalties
JEL Classification: G3, K4
Suggested Citation: Suggested Citation
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