The SEC’s Deterrence Effect on Corporate Fraud

58 Pages Posted: 12 Jan 2021 Last revised: 10 May 2021

See all articles by Botong Shang

Botong Shang

Singapore Management University - Lee Kong Chian School of Business; University of Rochester - Simon Business School

Date Written: May 9, 2021

Abstract

I estimate, using hand-collected data, a model of strategic corporate fraud that incorporates and quantifies firms' adjustments to fraud propensities in response to their expectations of regulators' information processing capacity. The findings are economically significant. With a one standard deviation change in different regulatory interventions, 10 to 58 additional fraudulent cases are committed each year. I exploit the 2005 option backdating scandal as an exogenous shock to regulatory attention, and find further support for both opportunism in fraud and the SEC's deterrence effect. Heterogeneity in fraud driven by executive incentives and firm complexity is documented.

Keywords: Corporate fraud, opportunistic behavior, fraud detection, SEC, security law enforcement, regulatory intervention, detection-controlled estimation, criminology

JEL Classification: G38, K42, M41, C30, C35, C57

Suggested Citation

Shang, Botong and Shang, Botong, The SEC’s Deterrence Effect on Corporate Fraud (May 9, 2021). Available at SSRN: https://ssrn.com/abstract=3710224 or http://dx.doi.org/10.2139/ssrn.3710224

Botong Shang (Contact Author)

University of Rochester - Simon Business School ( email )

Rochester, NY
United States

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

469 Bukit Timah Road
Singapore 912409
Singapore

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