September 01, 2010
Conglomerate Junior Scholars Workshop: Urska Velikonja's Leverage, Sanctions and Deterrence of Accounting Fraud
Posted by Christine Hurt

Welcome to the fourth and final week of the Conglomerate Junior Scholars Workshop!  Today we will be spotlighting a paper by Urska Velikonja entitled Leverage, Sanctions and Deterrence of Accounting Fraud.  Urska just finished a position as an O'Connor Fellow at Arizona State University Sandra Day O'Connor College of Law and is now beginning a clerkship with Judge Stephen F. Williams of the D.C. Circuit Court of Appeals.  For this paper, we will turn to expert commentary by our own Erik Gerding and friends of the Glom Miriam BaerKim Krawiec andMike Guttentag.  And, of course, we welcome discussion and debate from you!  Feel free to enter the conversation by commenting on this post or on the post of one of the expert commentators.

Here is the abstract of the paper:

The article argues that firm-level liability for fraud is justified by the need to secure the cooperation of the firm in pursuing individual wrongdoers ex post rather than in controlling top-level officer ex ante. Firm-level liability for fraud has often been criticized. The empirical evidence suggests that firms overpay for fraud liability and overspend on internal compliance mechanisms (which are generally ineffective at preventing fraud). Yet, insiders who commit fraud are rarely sanctioned for their wrongdoing, leading to moral hazard and underdeterrence of individuals. This article argues that two factors explain the failure to sanction managers who commit fraud. . . .(read more here).

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