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Enron, Herding, and the Deterrent Effect of Disclosure of Improprieties
Author(s) -
Renas Stephen M.,
Cebula Richard J.
Publication year - 2005
Publication title -
american journal of economics and sociology
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.199
H-Index - 38
eISSN - 1536-7150
pISSN - 0002-9246
DOI - 10.1111/j.1536-7150.2005.00390.x
Subject(s) - herding , sanctions , accounting , business , formative assessment , law , psychology , political science , history , pedagogy , archaeology
A bstract 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.