Does Corporate Prosecution Minimize Collateral Damages?: An Examination of Changes in a Firm’s Reputation

• In Event: Punitive Sanctions, Reputation and Crimes of the Elite

Abstract

When prosecuting incidents of corporate crime, the U.S. Department of Justice attempts to minimize collateral damages to corporations and individuals outside the scope of the federal investigation or indictment. In its efforts to minimize unintended harm to entities outside the scope of a given prosecution, efforts have been undertaken to augment the repertoire of traditional criminal procedural practices, such as plea-bargaining, with alternative methods of resolving a corporate crime cases. Since 2002, newer methodologies, specifically Deferred Prosecution Agreements (DPAs) and Non-Prosecution Agreements (NPAs), have been used by the Justice Department to resolve corporate crimes outside the context of the traditional U.S. District Court environment.

One measure of the impact of a white-collar case on a corporation is changes in a firm’s reputation. The use of both DPAs and NPAs are intended to lesson the harm done to a corporation’s image. This study hypothesizes that (1) the use of DPA’s and NPA’s does impact a firm’s reputation; (2) however, the magnitude of harm done is diminished in comparison to a traditional plea-agreement in federal District Court. This study utilizes Fortune magazine’s ratings of the World’s Most Admired Companies and examines changes in targeted firms’ reputation using a longitudinal regression analysis.

Author

• Hannarae Lee, Indiana University Bloomington