Former Members of the U.S. Congress and Fraud Enforcement: Does it Help to Have Politically Connected Friends on the Board?

46 Pages Posted: 8 May 2019

See all articles by Pankaj K. Maskara

Pankaj K. Maskara

Eastern Kentucky University - Accounting, Finance, & Information Systems; Nova Southeastern University

Emre Kuvvet

Nova Southeastern University

Date Written: August 17, 2017

Abstract

We investigate the relationship between the presence of former member of the U.S. Congress on corporate boards and fraud enforcement. We find that corporate fraud in companies with such members on the board stays undetected longer. When caught, such companies pay lower penalties. The appointment of former Congressional members to the board also lessens the probability of the company being subjected to Accounting and Auditing Enforcement Releases by the SEC after they face class-action lawsuits for fraudulent activities. Our results remain robust to the presence of other means of making political connections, such as lobbying, hiring revolving-door lobbyists, and contributing to political campaigns.

Keywords: politically connected board, former members of the U.S. congress, fraud enforcement, fraud detection

JEL Classification: G38, K22, K4

Suggested Citation

Maskara, Pankaj K. and Kuvvet, Emre, Former Members of the U.S. Congress and Fraud Enforcement: Does it Help to Have Politically Connected Friends on the Board? (August 17, 2017). Quarterly Review of Economics and Finance, Vol. 70, 2018, Available at SSRN: https://ssrn.com/abstract=3354899

Pankaj K. Maskara (Contact Author)

Eastern Kentucky University - Accounting, Finance, & Information Systems ( email )

United States

Nova Southeastern University ( email )

3301 College Avenue
Ft. Lauderdale, FL 33314
United States

Emre Kuvvet

Nova Southeastern University ( email )

Ft. Lauderdale, FL 33314
United States

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