58 Pages Posted: 18 Mar 2012 Last revised: 16 Jan 2017
Date Written: January 15, 2017
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). An instrumental variable approach provides consistent evidence of causality. We examine potential channels, and 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 paper sheds light on the personal benefits that executives can extract from political connections.
Keywords: political contributions, SEC enforcement, DOJ enforcement, fraud
JEL Classification: G3, K4
Suggested Citation: Suggested Citation
Fulmer, Sarah and Knill, April M. and Yu, Xiaoyun, Negation of Sanctions: The Personal Effect of Political Contributions (January 15, 2017). AFA 2013 San Diego Meetings Paper. Available at SSRN: https://ssrn.com/abstract=2024069 or http://dx.doi.org/10.2139/ssrn.2024069
By Pat Akey