The Reputational Penalty Firms Bear from
Committing Criminal Fraud (1993)
Jonathan M. Karpoff, John R. Lott Jr.
, Main idea
When a rm is accused of fraud, the largest damage it suffers comes not from legal nes or court actions, but
from the loss of reputation.
The authors argue that:
- society often believes that companies are punished too lightly;
- therefore, regulators tend to push for higher legal penalties;
- however, real market-based penalties are already very large because investors and customers lose trust.
In other words, the market — through declines in stock price — punishes rms more severely than the legal
system does.
fi fi fi
Committing Criminal Fraud (1993)
Jonathan M. Karpoff, John R. Lott Jr.
, Main idea
When a rm is accused of fraud, the largest damage it suffers comes not from legal nes or court actions, but
from the loss of reputation.
The authors argue that:
- society often believes that companies are punished too lightly;
- therefore, regulators tend to push for higher legal penalties;
- however, real market-based penalties are already very large because investors and customers lose trust.
In other words, the market — through declines in stock price — punishes rms more severely than the legal
system does.
fi fi fi
