Financial Market Misconduct and Public Enforcement: The Case of Libor Manipulation
Published, Management Science, 2019, Vol. 65:11, 5268–5289
59 Pages Posted: 18 Oct 2013 Last revised: 5 Mar 2021
Date Written: September 14, 2017
Using comprehensive data on London Interbank Offer Rate (Libor) submissions from 2001 through 2012, we document systematic evidence consistent with banks manipulating Libor to profit from Libor related positions and, to a degree, to signal their creditworthiness during the distressed times for banks. The evidence is initially stronger for banks that were eventually sanctioned by the regulators and disappears for all banks post-2010 in the aftermath of Libor investigations. Our findings suggest that public enforcement, with the threat of large penalties and the loss of reputation, can be effective in deterring financial market misconduct.
Keywords: Libor, manipulation, financial market misconduct, enforcement
JEL Classification: G11, G12, K42
Suggested Citation: Suggested Citation