Confronting the Two Faces of Corporate Fraud

71 Pages Posted: 22 Apr 2014 Last revised: 1 May 2014

Miriam H. Baer

Brooklyn Law School

Date Written: April 21, 2014

Abstract

Some criminals engage in meticulous planning. Others commit crimes in the heat of the moment. Corporate fraud incorporates both planned and spur-of-the-moment misconduct. Although law and economics scholars have traditionally viewed corporate fraud as a manifestation of opportunism among the corporation’s agents, a new generation of scholars, influenced by findings in behavioral psychology, has focused on the temporal aspects of corporate misconduct. Wrongdoing comes about, not simply because an agent opportunistically takes advantage of her principal, but also because her short-term self falls prey to temptations and cognitive biases that effectively disable her law-abiding long-term self.

Although the law and economics and behavioral psychology accounts separately offer important lessons for observers of corporate fraud, neither theory addresses the regulatory implications confronting opportunistic behavior and temporal inconsistency at the same time. How can an internal corporate enforcer best respond to the “two faces” of corporate fraud? This Article explores this question, first by analyzing the interaction between the two dispositions, and then by considering the relative merits of various enforcement approaches.

Keywords: fraud, deterrence, agency costs, hyperbolic discounting, behavioral psychology, white-collar crime, corporate governance, corporate compliance, self-control

Suggested Citation

Baer, Miriam H., Confronting the Two Faces of Corporate Fraud (April 21, 2014). Florida Law Review, Vol. 66, p. 87, 2014; Brooklyn Law School, Legal Studies Paper No. 377. Available at SSRN: https://ssrn.com/abstract=2427423

Miriam H. Baer (Contact Author)

Brooklyn Law School ( email )

250 Joralemon Street
Brooklyn, NY 11201
United States

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