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 Last revised: 16 Jun 2021
Date Written: August 17, 2017
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: Suggested Citation