New evidence on the origins of corporate crime

The intuition that poorly performing corporations are more likely to engage in crime is found throughout the contemporary literature on the economics and law and economics of corporate misconduct. Yet little evidence of such a relationship exists. This paper presents new evidence on the relationship between prior performance and corporate crime, using panel data on public corporations, 1975–92. When prior performance is measured in terms of earnings, only very weak evidence of a relationship is found. However, we find that a low rate of sales or employment growth by the firm tends to be a good predictor of environmental crime, and that environmental crime tends to occur in industries that have had relatively high rates of growth, as measured by employment or sales. This suggests that it is the performance of the firm rather than or relative to that of the industry that matters. Support for this finding is robust. The data provide weaker support for the notion that prior performance affects the occurrence of other types of corporate crime, particularly fraud. This may reflect the presence of mechanisms through which potential fraud victims, unlike potential environmental crime victims, can and do respond to events that would increase their chances of becoming crime victims by taking steps to prevent it. Finally, larger firms are found significantly more likely to have engaged in crime than smaller firms, in contrast to recent suggestions in the literature.