Corporate Misconduct and Government Contract Termination for Convenience

52 Pages Posted: 2 Oct 2023

See all articles by Ying Huang

Ying Huang

University of Texas at Dallas

Ningzhong Li

University of Texas at Dallas

Dongye Song

Calvin University

Xiaolu Zhou

University of Texas at Dallas

Date Written: September 13, 2023

Abstract

A prominent feature of government contracting is that the federal government has a unilateral right to terminate the contract for convenience if the termination is in “the Government’s interest.” We provide the first large sample evidence on government contract termination for convenience (TFC) and examine whether it can be triggered by contractors’ misconduct. We find that when contractors were penalized for labor misconduct in the previous year, their government contracts are more likely to be terminated for convenience. However, we find no evidence that contractors’ environmental or financial misconduct (e.g., accounting fraud), is associated with contract TFC. The effect of labor misconduct on TFC is stronger when the misconduct is more severe or recurring, when the contractor receives higher media attention, and when competition for government contracts is more intensive in the industry.

Keywords: Government contracting, Termination for convenience, Corporate misconduct, Labor violations, Environmental violations, Financial Violations, Environmental, social, and governance (ESG)

JEL Classification: K2, M41, M42

Suggested Citation

Huang, Ying and Li, Ningzhong and Song, Dongye and Zhou, Xiaolu, Corporate Misconduct and Government Contract Termination for Convenience (September 13, 2023). Available at SSRN: https://ssrn.com/abstract=4571294 or http://dx.doi.org/10.2139/ssrn.4571294

Ying Huang

University of Texas at Dallas ( email )

800 West Campbell
Richardson, TX 75080
United States

Ningzhong Li (Contact Author)

University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

Dongye Song

Calvin University ( email )

Grand Rapids, MI 49546
United States

Xiaolu Zhou

University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

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