On the nature of the reputational penalty for corporate crime: Evidence

Recent literature on optimal sanctions for corporations has focused on coor dination and refinement of criminal, civil, and market-based sanctions. Thi s paper contributes to emerging evidence on the reputational penalties that public corporations pay for federal crimes. First, it is shown that offens es harming only private parties and not government tend to be addressed thr ough civil or market-based and not criminal sanctions. Second, when crimina l allegations do arise, they are often surrounded by reports of terminated or suspended customer relationships and of management or employee turnover. These reports are more frequent if damaged parties are customers, as in fr aud, than if they are third parties, as in environmental crime, and if stoc k prices decline significantly at the first news of crime. All of these fea tures are consistent with characterizations of reputational penalties found in the literature. Findings on the nonatomistic nature of damaged parties suggest directions for future research.