Regulator-cited Cooperation Credit and Firm Value: Evidence from Enforcement Actions

55 Pages Posted: 22 Mar 2012 Last revised: 20 Jul 2018

Rebecca Files

University of Texas at Dallas

Gerald S. Martin

American University - Kogod School of Business

Stephanie J. Rasmussen

University of Texas at Arlington

Date Written: March 28, 2018

Abstract

Regulators claim to reward firm cooperation in the enforcement process. However, critics question which actions constitute firm cooperation and contend that cooperation leads to “harsh” and “unfair” outcomes. Examining 1,162 enforcement actions for financial misrepresentation initiated by the Securities and Exchange Commission and Department of Justice, we find that regulator-cited cooperation credit is best explained by remedial actions and self-reported law violations. Cooperation credit is negatively associated with firm monetary penalties assessed by regulators. Our estimates suggest that firms with cooperation credit realize an average penalty reduction of $23.8 million (49 percent). We also estimate that average reputation-related losses are $756 million (70 percent) lower for firms with cooperation credit. We find no association between cooperation credit and related private action outcomes. Our results provide important insight into what constitutes meaningful cooperation with regulators and suggest that the benefits can be substantial for firms deemed to be cooperative.

Keywords: Cooperation, Fraud, Penalties, Financial reporting, Litigation, Securities and Exchange Commission

JEL Classification: G38, K22, K42, M41

Suggested Citation

Files, Rebecca and Martin, Gerald S. and Rasmussen, Stephanie J., Regulator-cited Cooperation Credit and Firm Value: Evidence from Enforcement Actions (March 28, 2018). Available at SSRN: https://ssrn.com/abstract=2026282 or http://dx.doi.org/10.2139/ssrn.2026282

Rebecca Files

University of Texas at Dallas ( email )

800 West Campbell Road, SM 41
Richardson, TX 75080-3021
United States
9728835818 (Phone)

Gerald S. Martin (Contact Author)

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)

Stephanie J. Rasmussen

University of Texas at Arlington ( email )

Box 19468
Arlington, TX 76019-0468
United States

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