Why Do Professional Managers Collude in Corporate Crimes? New Evidence from the Dark Side of Family Controlled Firms

23 Pages Posted: 26 Feb 2018

See all articles by Changmin Lee

Changmin Lee

Hanyang University - Seoul Campus

Hansoo Choi

KIPF (Korea Institute of Public Finance)

Date Written: February 21, 2018

Abstract

This paper investigates the relationship between family firm, internal and external governance, and corporate fraud. We focus on judicial and market attitudes toward professional top managers, not controlling shareholders, involved in corporate fraud in family controlled firms in Korea. We find that top managers receive lighter sentences. The probability that a professional manager goes to prison is 35.7%p less than that of a controlling shareholder. Moreover, no top management has ever gone to prison at an appellate court. Secondly, almost 55% of professional top managers involved in corporate crimes come back to the position in the near future after sentencing decisions. Almost 84% of resurrected professional managers in the market had worked for family controlled business groups, chaebol-affiliated firms at the moment of their corporate crimes. More surprisingly, 87% of returning chaebol managers take the executive position at an affiliated firm. In sum, we provide evidence for “the economics of crime” by showing the costs of criminal conspiracy. Our findings suggest the possibility that an ill-functioning legal system and market for professional managers lowers the costs of crime incurred by a professional manager going to prison, losing a reputation, and losing a job in the future.

Keywords: Family Firm, Controlling Shareholder, Professional Manager, Corporate Crime, Tunneling, Judicial System, Internal Labor Market

JEL Classification: G30, K40

Suggested Citation

Lee, Changmin and Choi, Hansoo, Why Do Professional Managers Collude in Corporate Crimes? New Evidence from the Dark Side of Family Controlled Firms (February 21, 2018). Available at SSRN: https://ssrn.com/abstract=3127657 or http://dx.doi.org/10.2139/ssrn.3127657

Changmin Lee (Contact Author)

Hanyang University - Seoul Campus ( email )

17 Haegdang-dong
Seongdong-ku
Seoul, 133-791

Hansoo Choi

KIPF (Korea Institute of Public Finance) ( email )

1924,Hannuri-daero
Sejong-si, 339-007
Korea, Republic of (South Korea)

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