Negation of Sanctions: The Personal Effect of Political Contributions

57 Pages Posted: 18 Mar 2012 Last revised: 20 May 2017

Sarah Fulmer

Florida State University - Department of Finance

April M. Knill

Florida State University College of Business; Florida State University - College of Law

Xiaoyun Yu

Indiana University - Kelley School of Business - Department of Finance; China Academy of Financial Research (CAFR)

Date Written: May 20, 2017

Abstract

We show that political contributions negatively affect the severity of governmental enforcement outcomes for executives accused of committing fraud. Contributing executives receive smaller monetary fines, are banned fewer years as an officer or director of a public company, serve less time in prison or on probation, and enjoy a lower probability of receiving the harshest penalty from both the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ). When examining potential channels, we find that political contributions lengthen the case time-to-resolution with the SEC and increase the chance of settling with government agencies instead of going to court, allowing fraudulent executives to receive less harsh sanctions. Our findings highlight the personal benefits that executives can extract from political connections, and identify a mechanism that potentially undermines the disciplining effect for fraudulent managers.

Keywords: political contributions, SEC enforcement, DOJ enforcement, fraud

JEL Classification: G3, K4

Suggested Citation

Fulmer, Sarah and Knill, April M. and Yu, Xiaoyun, Negation of Sanctions: The Personal Effect of Political Contributions (May 20, 2017). AFA 2013 San Diego Meetings Paper. Available at SSRN: https://ssrn.com/abstract=2024069 or http://dx.doi.org/10.2139/ssrn.2024069

Sarah Fulmer

Florida State University - Department of Finance ( email )

Tallahassee, FL 32306-1042
United States

April M. Knill (Contact Author)

Florida State University College of Business ( email )

Tallahassee, FL 32306-1042
United States
(850) 644-2047 (Phone)

Florida State University - College of Law ( email )

425 W. Jefferson Street
Tallahassee, FL 32306
United States

Xiaoyun Yu

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3521 (Phone)
812-855-5875 (Fax)

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

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