Financial Wrongdoing Research Articles

Selling scandal or ideology? The politics of business crime coverage

Financial scandals and controversies have recently attracted much attention in the British press. The excesses of the bankers’ bonuses, MPs’ expenses scandals and those deemed ‘benefit cheats’ and welfare scroungers have been given prominence by the print news media, and the present Coalition government. The politicization of the current financial crisis has resulted in ‘the privatization of loss and the socialization of costs’. Yet how do we make sense of this? Or how are those responsible for financial wrongdoings able to ‘get away with it’? This article suggests that the interests of business as a class remain largely uncontested in contemporary political discourse. Just one way in which this is evident is through the coverage of financial crime, and this article offers as illustration a case study of the political construction of business crime (price fixing) in the pages of the British press. It is suggested that the way in which this crime is framed is reflective of a broader ideological discursive commitment which privileges business interests over the public interest.

Enron’s perp walk: Status degradation ceremonies as narrative

The collapse of Enron and revelations about the widespread financial wrongdoing of other corporations prompted congressional hearings in 2002. The hearings culminated in the Sarbanes-Oxley Act, legislation that regulates the accounting industry and imposes prison sentences on executives who lie on their corporations’ financial statements. There was extensive media coverage of Enron and the other high-profile corporations and of the congressional hearings into their wrongdoing. In this paper, we analyze the media representations of these matters. We focus on media coverage of the political language that was offered during the hearings, on the media’s own characterizations of these events, and on how the coverage represented corporate wrongdoing and its control. Our analysis is in three parts. First, we track the ‘bad apples’ language that shifted blame from the corporations onto individuals. Second, we consider the angry denunciations from Congress that resemble status degradation ceremonies. Third, we analyze the hearings as representations of the scandal story using a critical dramaturgy. We argue that the hearings became a spectacle that deflected critique from the economy and shored up the legitimacy of the government and the economy. The usage of critical dramaturgy helps us to make sense of criminological research about the public’s sensibilities of corporate crime.

Changes in Discretionary Financial Reporting Behavior following the Sarbanes-Oxley Act

We examine the effect of the Sarbanes-Oxley Act (SOX) on the extent of aggressive versus conservative reporting behavior of public companies. SOX imposes considerably greater potential penalties on chief executive officers (CEOs) and chief financial officers (CFOs) who engage in financial wrongdoing. Therefore, risk-averse managers are likely to report lower earnings by reducing discretionary accruals following SOX. Our results, based on a matched sample of dual-listed Canadian firms and their domestically listed counterparts, indicate that (1) firms subject to SOX are more conservative in financial reporting in the post-SOX period as evidenced by lower signed discretionary accruals, the Ball and Shivakumar (2005) conditional conservatism measure, and the Penman and Zhang (2002) unconditional conservatism measure; and (2) the impact of SOX on firms' conservative reporting through discretionary accruals in the post-SOX period is not homogeneous—that is, it is more pronounced for firms that were aggressive in the pre-SOX period.

The Unjustified Judicial Creation of Class Certification Merits Trials in Securities

The class action device is vital to deterring securities fraud and remedying its victims, who almost never suffer losses sufficient to justify an individual suit. Nonetheless, the federal courts have begun to convert the class certification process into a premature trial on the merits, thereby precluding victims of securities fraud from pursuing otherwise valid claims of financial wrongdoing. In particular, in a series of important decisions, the federal courts have required plaintiffs to prove the essential elements of their securities fraud claims at the preliminary class certification stage. This Article demonstrates why this trend should end. The judicial creation of class certification merits trials in securities fraud cases is inconsistent with the federal securities laws and Supreme Court precedent. Moreover, judicial resolution of the merits of a securities fraud claim at the class certification threshold infringes on the Seventh Amendment right to trial by jury. Nor can class certification merits trials be excused by any legitimate policy concerns. The harm purportedly averted by these trials is illusory. The supposed threat that class certification and post-certification discovery costs will produce in terrorem settlements is unfounded and illogical. Finally, this Article concludes that the harm caused by class certification merits trials is substantial. This new procedure will over-deter the very type of private securities fraud actions that both supplement Securities and Exchange Commission enforcement actions and compensate victims for losses caused by securities fraud.

Changes in Discretionary Financial Reporting Behavior Following the Sarbanes-Oxley Act

We examine the effect of the Sarbanes-Oxley Act (SOX) on the extent of aggressive/conservative reporting behavior of public companies. SOX imposes considerably greater potential penalties on CEO/CFOs who engage in financial wrongdoing; therefore, risk averse managers are likely to report lower earnings by reducing discretionary accruals following SOX. Our results, based on a matched sample of dual-listed Canadian firms and their domestically-listed counterparts, indicate that (1) firms subject to SOX are more conservative in financial reporting in the post-SOX period as evidenced by lower signed discretionary accruals, the differential earnings persistence conditional conservatism measure, and the Penman and Zhang (2002) unconditional conservatism measure, and (2) the impact of SOX on firms' conservative reporting through discretionary accruals in the post-SOX period is not homogeneous; it is more pronounced for firms that were aggressive in the pre-SOX period.

Discretionary Accrual Changes Following the Sarbanes-Oxley Act

We examine changes in discretionary accruals following the Sarbanes-Oxley Act (SOX). SOX imposes considerably greater potential penalties on CEO/CFOs who engage in financial wrongdoing; therefore, risk averse managers are likely to report lower earnings by reducing discretionary accruals following SOX. Our results indicate that (1) Canadian firms subject to SOX report lower discretionary accruals in the post-SOX period; (2) there is no regulatory spillover effect of SOX on Canadian firms not under the jurisdiction of SOX; (3) the impact of SOX on firms' conservative reporting through discretionary accruals in the post-SOX period is not homogeneous; it is more pronounced for firms that were aggressive in the pre-SOX period.

Scientific community. The trials of Thomas Butler.

Thomas Butler was a sought-after plague expert, with a clinical trial in Tanzania that promised important results for biodefense. Then he was charged with mishandling plague samples and lying to the FBI. This month, a jury convicted him of financial wrongdoing. Who is Thomas Butler, and what lessons do his trials hold?

Financial wrongdoing by former HERE president

Financial wrongdoing by former HERE president