Political Contributions and the Severity of Government Enforcement
Florida State University - Department of Finance
April M. Knill
Florida State University
Indiana University - Kelley School of Business - Department of Finance; China Academy of Financial Research (CAFR)
March 1, 2012
AFA 2013 San Diego Meetings Paper
Using data on political contributions and government enforcement actions from 1999 through 2010, we document a negative relationship between political contributions and the severity of government enforcement outcomes. Specifically, a $10,000 increase in contributions is associated with a reduction in the number of years accused executives are penalized with an officer ban (0.47 fewer years), probation (0.19 fewer years) and prison (0.32 fewer years), as well as the probability of receiving the harshest penalty from each agency (10%). Executives who personally contribute see similar effects. Results are robust to controlling for alternate reasons for disparate penalties (net benefit to shareholders and earned leniency), alternate discipline mechanisms (class action lawsuits, termination by the board, and firm delisting), and the level of discretion the agencies have in imposing penalties. We find some evidence to support a delay mechanism in criminal sanctions.
Number of Pages in PDF File: 46
Keywords: political contributions, SEC enforcement, DOJ enforcement, fraud
JEL Classification: G3, K4
Date posted: March 18, 2012 ; Last revised: June 3, 2016
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