Criminal convictions and risk taking

From Australian Journal of Management

This study examines whether firms led by individuals with criminal convictions  (for less serious crimes e.g. driving offences) adopt more risky corporate policies. Using a database on crime convictions, authors find that non-trivial proportions of board members, CEOs and CFOs in Swedish listed companies have been convicted or suspected of crimes. Based on existing research, it is argued that directors and senior executives who have been convicted or suspected of crimes exhibit a higher propensity for risk taking. In particular, it examines whether such firms report more volatile earnings, engage in more risky acquisitions of subsidiaries and report less conservatively.

Abstract

An analysis of a proprietary dataset reveals that non-trivial proportions of directors, Chief Executive Officers (CEOs) and Chief Financial Officers in Swedish listed companies have been convicted or suspected of crimes. Based on prior literature, we argue that directors and senior executives who have been convicted or suspected of crimes are more prone to take risk. Consistent with this argument, we find that firms with more criminally convicted/suspected directors and CEOs report more volatile earnings, engage more in goodwill writeoffs due to more unsuccessful acquisitions, and recognize bad news in earnings in a less timely manner. We also find that these firms are, on average, smaller and less profitable. These findings highlight the role personal characteristics of directors and senior management play in managerial decisions.

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Article details
Eli Amir, Juha-Pekka Kallunki, and Henrik Nilsson
Criminal convictions and risk taking Australian Journal of Management November 2014 39: 497-523, first published on January 27, 2014 doi:10.1177/0312896213513276

 

     
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