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The Consequences to Managers for Financial Misrepresentation

  • Jonathan M. KarpoffEmail author
  • D. Scott Lee
  • Gerald S. Martin

Abstract

We track the fortunes of all 2,206 individuals identified as responsible parties for all 788 Securities and Exchange Commission (SEC) and Department of Justice (DOJ) enforcement actions for financial misrepresentation from January 1, 1978 through September 30, 2006. A total of 93 % lose their jobs by the end of the regulatory enforcement period. Most are explicitly fired. The likelihood of ouster increases with the cost of the misconduct to shareholders and the quality of the firm’s governance. Culpable managers also bear substantial financial losses through restrictions on their future employment, their shareholdings in the firm, and SEC fines. A sizeable minority (28 %) face criminal charges and penalties, including jail sentences that average 4.3 years. These results indicate that the individual perpetrators of financial misconduct face significant disciplinary action.

Keywords

Enforcement Action Target Firm Board Independence Government Accountability Office Board Chair 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  • Jonathan M. Karpoff
    • 1
    Email author
  • D. Scott Lee
    • 2
  • Gerald S. Martin
    • 3
  1. 1.University of Washington, Foster School of BusinessSeattleUSA
  2. 2.University of Nevada, Lee Business SchoolLas VegasUSA
  3. 3.American University, Kogod School of BusinessWashingtonUSA

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