Deterrence Effect and Opportunistic Corporate Fraud

52 Pages Posted: 12 Jan 2021 Last revised: 1 Dec 2022

See all articles by Botong Shang

Botong Shang

Singapore Management University - Lee Kong Chian School of Business

Date Written: November 30, 2022

Abstract

I quantify the deterrence effect of SEC regulatory intervention. Using unique data, I estimate a model that captures regulatory deterrence by firms' adjustments of fraud propensities in response to their expectations of regulators' enforcement actions, and find that 10 to 58 additional firms commit fraud each year with a one standard deviation change in the main forms of SEC regulatory intervention. To aid model identification, I exploit exogenous variation in regulatory attention from the 2005 option backdating scandal and find further support for the deterrence effect of enforcement. The findings are robust to various alternative stories.

Keywords: deterrence, enforcement, fraud, SEC, detection-controlled estimation

JEL Classification: G38, K42, M48, C35

Suggested Citation

Shang, Botong, Deterrence Effect and Opportunistic Corporate Fraud (November 30, 2022). Available at SSRN: https://ssrn.com/abstract=3710224 or http://dx.doi.org/10.2139/ssrn.3710224

Botong Shang (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

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