Does It Pay for Firms to Cooperate with Regulators?
University of Texas at Dallas
Gerald S. Martin
American University - Kogod School of Business
Stephanie J. Rasmussen
University of Texas at Arlington
July 7, 2014
This study examines whether cooperation with regulators results in monetary benefits for firms charged with financial misrepresentation. Using a sample of 1,095 enforcement actions by the Securities and Exchange Commission (SEC) and Department of Justice (DOJ), we find that firms credited for cooperation by regulators reduce their monetary penalties by an average of $43.1 million or 65.8%. For those firms not credited for cooperation, the penalties nearly triple. These estimates are robust to using alternative estimators to control for potential selection issues and controlling for the factors used by regulators when determining the amount of monetary penalties assessed. Our results indicate there are significant monetary benefits for firms that regulators deem to be cooperative.
Number of Pages in PDF File: 62
Keywords: Fraud, Penalties, Financial reporting, Litigation, Securities and Exchange Commission
JEL Classification: G38, K22, K42, M41working papers series
Date posted: March 22, 2012 ; Last revised: July 9, 2014
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