52 Pages Posted: 11 Sep 2007 Last revised: 18 Sep 2012
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: 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
By John Coffee
By Stefan Zeume