Corporate Scandals and Regulation

74 Pages Posted: 2 May 2017 Last revised: 15 Aug 2018

See all articles by Luzi Hail

Luzi Hail

University of Pennsylvania - The Wharton School

Ahmed Tahoun

London Business School

Clare Wang

University of Colorado at Boulder - Leeds School of Business

Multiple version iconThere are 3 versions of this paper

Date Written: August 2018

Abstract

Are regulatory interventions delayed reactions to market failures or can regulators proactively pre-empt corporate misbehavior? From a public interest view, we would expect “effective” regulation to ex ante mitigate agency conflicts between corporate insiders and outsiders, and prevent corporate misbehavior from occurring or quickly rectify transgressions. However, regulators are also self-interested and may be captured, uninformed, or ideological, and become less effective as a result. In this registered report, we develop a historical time series of corporate (accounting) scandals and (accounting) regulations for a panel of 26 countries from 1800 to 2015. An analysis of the lead-lag relations at both the global and individual country level yields the following insights: (i) Corporate scandals are an antecedent to regulation over long stretches of time, suggesting that regulators are typically less flexible and informed than firms. (ii) Regulation is positively related to the incidence of future scandals, suggesting that regulators are not fully effective, that explicit rules are required to identify scandalous corporate actions, or that new regulations have unintended consequences. (iii) There exist systematic differences in these lead-lag relations across countries and over time suggesting that the effectiveness of regulation is shaped by fundamental country characteristics like market development and legal tradition.

Keywords: Accounting fraud, Corporate scandals, Capital market regulation, Economics of regulation, Law and finance, International accounting

JEL Classification: F30, G18, G38, K22, L51, M48, N20

Suggested Citation

Hail, Luzi and Tahoun, Ahmed and Wang, Clare, Corporate Scandals and Regulation (August 2018). European Corporate Governance Institute (ECGI) - Law Working Paper No. 367/2017. Available at SSRN: https://ssrn.com/abstract=2961535 or http://dx.doi.org/10.2139/ssrn.2961535

Luzi Hail (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-8205 (Phone)
215-573-2054 (Fax)

Ahmed Tahoun

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Clare Wang

University of Colorado at Boulder - Leeds School of Business ( email )

Boulder, CO 80309-0419
United States

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