Agency Costs and Enforcement of Management Controls: Analyzing Punishments for Perpetrators of Economic Crimes

56 Pages Posted: 30 Jun 2016 Last revised: 12 May 2018

See all articles by Paul M. Healy

Paul M. Healy

Harvard Business School; National Bureau of Economic Research (NBER)

George Serafeim

Harvard University - Harvard Business School

Date Written: March 20, 2018

Abstract

We examine the severity of punishments for employees who perpetrate economic crimes to understand how aggressively organizations enforce compliance with management control systems. Our dataset comprises 608 organizations around the world that identified they experienced economic crime. We find wide variation in rates of dismissal and legal action against the primary perpetrators. Further, punishment rates are lower for senior management than for middle managers and junior staff. We document that the negative relation between seniority and punishment severity holds only for senior male perpetrators; senior female perpetrators receive harsher punishments than senior males. These findings are more pronounced in organizations that operate in countries with more gender inequality, have less frequent updates to internal control, do not report the crime to regulators, and do not disclose their identity in the survey. We interpret these findings as evidence of agency costs by punishment decision-makers in setting more lenient punishments for senior perpetrators from their own male social networks.

Keywords: economic crime, gender, fraud, penalties, corruption, social networks, agency costs

JEL Classification: K41, K42, G34, M41, M51, J16

Suggested Citation

Healy, Paul M. and Serafeim, George, Agency Costs and Enforcement of Management Controls: Analyzing Punishments for Perpetrators of Economic Crimes (March 20, 2018). AAA 2017 Management Accounting Section (MAS) Meeting. Available at SSRN: https://ssrn.com/abstract=2801622 or http://dx.doi.org/10.2139/ssrn.2801622

Paul M. Healy

Harvard Business School ( email )

Soldiers Field
Boston, MA 02163
United States
617-495-1283 (Phone)
617-496-7387 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

George Serafeim (Contact Author)

Harvard University - Harvard Business School ( email )

381 Morgan Hall
Boston, MA 02163
United States

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