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

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  • Stephen M. Renas
  • Richard J. Cebula

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.

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  • Stephen M. Renas & Richard J. Cebula, 2005. "Enron, Herding, and the Deterrent Effect of Disclosure of Improprieties," American Journal of Economics and Sociology, Wiley Blackwell, vol. 64(3), pages 743-756, July.
    • Handle: RePEc:bla:ajecsc:v:64:y:2005:i:3:p:743-756
    DOI: 10.1111/j.1536-7150.2005.00390.x
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    Cited by:

    1. Cebula, Richard J. & Clark, J.R. & Mixon, Franklin G., Jr., 2013. "The Impact of Economic Freedom on Per Capita Real GDP: A Study of OECD Nations," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 43(1).
    2. repec:kap:iaecre:v:17:y:2011:i:4:p:421-435 is not listed on IDEAS
    3. Fabrizio Rossi & Richard J. Cebula, 2015. "Stock market reactions to announcements of the board of directors: evidence from Italy," Applied Economics, Taylor & Francis Journals, vol. 47(20), pages 2102-2118, April.
    4. Rossi, Fabrizio & Cebula, Richard, 2013. "Stock Market Reactions to Announcements of Board of Director Appointments: Evidence from Italy," MPRA Paper 58403, University Library of Munich, Germany.
    5. Matthew T. Clements, 2013. "Self-Interest vs. Greed and the Limitations of the Invisible Hand," American Journal of Economics and Sociology, Wiley Blackwell, vol. 72(4), pages 949-965, October.
    6. Foley, Maggie & Cebula, Richard & Jun, Chulhee, 2013. "An Analysis of Withdrawn Shareholder Proposals," MPRA Paper 55422, University Library of Munich, Germany.
    7. Richard Cebula & J. Clark, 2012. "Lessons from the experience of OECD nations on macroeconomic growth and economic freedom, 2004–2008," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 59(3), pages 231-243, September.
    8. Samir El-Gazzar & Kwang-Hyun Chung & Rudolph Jacob, 2011. "Reporting of Internal Control Weaknesses and Debt Rating Changes," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 17(4), pages 421-435, November.
    9. Çule, Monika & Fulton, Murray, 2009. "Business culture and tax evasion: Why corruption and the unofficial economy can persist," Journal of Economic Behavior & Organization, Elsevier, vol. 72(3), pages 811-822, December.

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