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The peer effect of penalty against firm leaders

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  • Cai, Wenjing
  • Jiang, Fuxiu
  • Ma, Jia

Abstract

This paper investigates whether and how penalty against firm leaders influences peer firm's financial misconduct. When observing salient penalties against their peers, firms tend to adjust their expected costs related to financial misconduct to a higher level. This will then weaken focal firm leaders’ motivation to commit financial misconduct given their expected benefits from it are determined. By employing a difference-in-differences (DID) method, we find supporting evidence. Further analyses show that this effect is more prominent when observing firms witness severer punishment or they are SOEs.

Suggested Citation

  • Cai, Wenjing & Jiang, Fuxiu & Ma, Jia, 2023. "The peer effect of penalty against firm leaders," Finance Research Letters, Elsevier, vol. 52(C).
    • Handle: RePEc:eee:finlet:v:52:y:2023:i:c:s1544612322006602
    DOI: 10.1016/j.frl.2022.103484
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    References listed on IDEAS

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    Cited by:

    1. Cai, Wenjing & Cai, Xinni & Wang, Zehao & Yang, Ge, 2023. "The spillover effect of penalty against peer firm leaders——Evidence from earnings management," Finance Research Letters, Elsevier, vol. 54(C).

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