June 24, 2008
Punishment for perpetrators in corporate scandals
I came across a great paper the other day: Peng Sun and Yi Zhang, "Is There Penalty for Crime: Corporate Scandal and Management Turnover in China" (March 2006). The authors are trying to figure out whether top executives suffer when they perpetrate corporate frauds. [UPDATE: A correspondent has noted that, strictly speaking, the paper is talking about what happens to executives when the company or the executive perpetrates a fraud. Thus, the sample could include cases where we would not want to say that the executive had actually perpetrated the fraud.] They discover, somewhat to their surprise, that CEOs and board chairmen (COBs) do tend to lose their jobs after a scandal. But then the authors take an interesting extra step that, surprisingly, few studies in this area seem to take: they track what happened to the executives after they lost their jobs. And here's the amazing result: fully 70% of COBs and 66% of CEOs actually get promoted to higher positions in industry or government, or move across to positions no worse than the ones they had. Only a tiny number suffered severe administrative sanctions (banned from the market, barred from serving as officer of listed company, or recommended for dismissal by CSRC) or legal sanctions (prison time). Finally, Party membership was positively correlated with milder sanctions.
Here are the numbers and a graphic I put together:
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