Enron, Herding, and the Deterrent Effect of Disclosure of Improprieties

Abstract

One objective of regulatory investigations of possible improprieties by publicly traded corporations and the imposition of sanctions if malfeasance is found is to deter other corporations from engaging in such behavior. Although the magnitude of the deterrent effect is an empirical issue, this paper provides an a priori analysis as to why the deterrent effect will be blunted in many cases, why its strength will not be uniform over time, and why, based in part on prospect theory, the deterrent effect will be weaker for ongoing questionable practices than for practices in their formative stages.

The relationship between board characteristics and performance of bank holding companies: before and during the financial crisis

“…It should be noted that although previous literature reports that the Sarbanes-Oxley Act of 2002 has had an effect on board behavior(Renas and Cebula 2005) and that shareholder proposals may reduce agency costs(Boylan et al 2014), we do not address either of these issues in our study.…”

The Roles of Economic Freedom and Regulatory Quality in Creating a Favorable Environment for Investment in EnergyR&D, Infrastructure, and Capacity

“…However, excessive banking and financial regulation by government restricts competition, interferes with firm efficiency, and elevates the costs of entrepreneurial activity. Arguably, within “a free banking environment, the marketplace should be the primary source of protection through such institutions as independent auditors and information services” (Heritage Foundation : 14; Renas and Cebula ). Such oversight is quite different from burdensome or intrusive government financial industry regulation or actual government ownership of banks or other financial firms; the latter interfere with the market mechanism in the efficient provision of financial services to the economy.…”

Business culture and tax evasion: Why corruption and the unofficial economy can persist

“…Myles and Naylor (1996) develop a social custom and conformity model of tax evasion and obtain two equilibria-one with no evasion and one with total evasion. Renas and Cebula (2005) argue that financial scandals such as Enron need to be seen in light of both herding behavior and the perceived status quo or reference point phenomenon (Kahneman and Tversky, 1979).…”