The Frequency of Corporate Misconduct: Public Enforcement versus Private Reality

Abstract

Corporate misconduct undermines confidence in business and erodes public trust. Perceptions about the frequency of misconduct — among the public, academics, and even regulators — have largely been formed by examining enforcement statistics, which rely on the detection and sanctioning of the misconduct. By examining confidential firm records describing misconduct within organizations, I show that public enforcement statistics significantly underestimate the amount of serious malfeasance that arises within firms. Through analyzing records for several large multinational firms, I find that there are, on average, more than two instances of internally substantiated financial misconduct per week per firm. Ultimately, this analysis illustrates the challenge of addressing corporate malfeasance within large organizations.