Abstract

http://ssrn.com/abstract=2026282
 


 



The Monetary Benefit of Cooperation in Regulatory Enforcement Actions for Financial Misrepresentation


Rebecca Files


University of Texas at Dallas

Gerald S. Martin


American University - Kogod School of Business

Stephanie J. Rasmussen


University of Texas at Arlington

March 19, 2012


Abstract:     
We examine the monetary benefits of cooperation for 1,059 enforcement actions initiated by the Securities and Exchange Commission (SEC) and Department of Justice (DOJ) for financial misrepresentation from 1978-2011. We estimate that firm cooperation results in a 12% increase in the probability of regulators bringing charges against firms. However, using a Heckman full maximum likelihood estimator, we find that being credited for cooperation by regulators reduces the monetary penalties firms pay by 35% (conversely, non-cooperation increases monetary penalties by 53%). Assuming an average penalty, this translates to a $6 million benefit from cooperation. When cooperation credit is coupled with conducting an independent investigation and making the results available to regulators, monetary penalties are reduced by 47%, or $8.2 million on average. These estimates are robust to controlling for factors considered by the SEC and DOJ when determining whether or not to bring charges and determining penalties. Alternative estimators provide similar estimates of the monetary benefits of cooperation.

Number of Pages in PDF File: 53

Keywords: Fraud, Penalties, Financial reporting, Litigation, Securities and Exchange Commission

JEL Classification: G38, K22, K42, M41, M48

working papers series


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Date posted: March 22, 2012  

Suggested Citation

Files, Rebecca and Martin, Gerald S. and Rasmussen, Stephanie J., The Monetary Benefit of Cooperation in Regulatory Enforcement Actions for Financial Misrepresentation (March 19, 2012). Available at SSRN: http://ssrn.com/abstract=2026282 or http://dx.doi.org/10.2139/ssrn.2026282

Contact Information

Rebecca Files
University of Texas at Dallas ( email )
P.O. Box 830688
Richardson, TX 75083-0688
United States
Gerald S. Martin (Contact Author)
American University - Kogod School of Business ( email )
Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States
202-885-3914 (Phone)
Stephanie J. Rasmussen
University of Texas at Arlington ( email )
Box 19468
Arlington, TX 76019-0468
United States
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