Download this Paper Open PDF in Browser

The Consequences to Managers for Financial Misrepresentation

52 Pages Posted: 11 Sep 2007 Last revised: 18 Sep 2012

Jonathan M. Karpoff

University of Washington - Michael G. Foster School of Business

D. Scott Lee

University of Nevada, Las Vegas - Lee Business School

Gerald S. Martin

American University - Kogod School of Business

Abstract

We track the fortunes of all 2,206 individuals identified as responsible parties for all 788 SEC and Department of Justice enforcement actions for financial misrepresentation from 1978 through September 30, 2006. Fully 93% lose their jobs by the end of the regulatory enforcement period. A majority explicitly are fired. The likelihood of ouster increases with the cost of the misconduct to shareholders and the quality of the firm's governance. Culpable managers also bear substantial financial losses through restrictions on their future employment, their shareholdings in the firm, and SEC fines. A sizeable minority (28%) face criminal charges and penalties, including jail sentences that average 4.3 years. These results indicate that the individual perpetrators of financial misconduct face significant disciplinary action.

Keywords: Management turnover, CEO turnover, financial misrepresentation, fraud, penalties, Securities and Exchange Commission

JEL Classification: G38, K22, K42, M41, M43, G34

Suggested Citation

Karpoff, Jonathan M. and Lee, D. Scott and Martin, Gerald S., The Consequences to Managers for Financial Misrepresentation. Journal of Financial Economics, 88, May 2008, 193-215.. Available at SSRN: https://ssrn.com/abstract=1012730

Jonathan M. Karpoff (Contact Author)

University of Washington - Michael G. Foster School of Business ( email )

Box 353226
Seattle, WA 98195-3200
United States
206-685-4954 (Phone)
206-221-6856 (Fax)

D. Scott Lee

University of Nevada, Las Vegas - Lee Business School ( email )

4505 S. Maryland Parkway
Box 456008
Las Vegas, NV 89154-6008
United States
702-895-2526 (Phone)
702-895-4630 (Fax)

HOME PAGE: http://faculty.unlv.edu/slee

Gerald S. Martin

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)

Paper statistics

Downloads
1,377
Rank
10,543
Abstract Views
5,686