The Financial Impact of Illegal Corporate Behaviour

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The Financial Impact of Illegal Corporate Behaviour - Summary

Summary:

The illegal corporate behaviour at company-level or at the corporate agent level has direct or indirect financial impact. The direct impact effects on the firm’s profits or intrinsic value and the indirect impact is on the shareholders trust. It is the unlawful activities that consist of insider trading, corruption, tax fraud, price fixing, bid rigging, accounting fraud and theft or employee enrichment, involving members or agents or employees or managers of a firm. It has short-term and long-term consequences of corporate illegality. The corporate offenders have misguided the process of consequences of wrongdoing by providing unreliable data which results in civil fines. Forcing employees of a firm to work overtime without pay is also an illegal misdeed. The punishment for this corporate illegality cost high to higher on long-term. The researchers have also analyzed firm performance and subsequent illegality compared to other firms.

They also focussed on causes of corporate illegality to find out what happens after a firm engages in and is convicted of illegal acts. The convicted firms generate lower accounting return after a conviction which results in lower revenues or higher costs and it’s reduce sales growth indicates that customers may react more slowly to wrongdoing than other stakeholders. To overcome from this situation, managers employ defensive tactics to overstate revenues, strive to avoid the label of corporate wrongdoer and worry about damage to a firm’s reputation. The managers also recognize the costs of wrongdoing and the likely negative impact on performance if illegality is detected and punished in short-term consequences. But, in the long-term consequences, as the firms suffer prolonged damage from illegality, managers mount defensive efforts to mitigate short-term effects of wrongdoing by incurring direct costs of sanctions like fines and punitive damages and protracted legal costs from litigation and appeals.

However, the researchers have examined that longer-term consequences of illegality may vary with the seriousness of wrongdoing as because the serious violations have heavy fines and other penalties and also damage to a firm’s reputation as well as have much negative publicity. It is also revealed that multiple convictions relate negatively to firm’s longer-term financial performance than that of unconvicted firms or single-conviction firms and the unconvicted firms have higher sales growth and high income from a given level of sales than that of convicted firms.

Questions And Answers

a) What financial impact does illegal corporate behavior have on a company?

The illegal corporate behaviors have two types of financial impact on a company – direct and indirect. The direct impact effects on the firm’s profits or intrinsic value and the indirect impact is on the shareholders trust. Effected by illegal corporate behaviour, the convicted firms generate lower accounting return after a conviction which results in lower revenues or higher costs and it’s reduce sales growth indicates that customers may react more slowly to wrongdoing than other stakeholders.

If illegality is detected in short-term consequences, then the company is penalised with the costs of wrongdoing and it shows the negative impact on performance. But, in the long-term consequences, as the firms suffer prolonged damage from illegality, managers mount defensive efforts to mitigate short-term effects of wrongdoing by incurring direct costs of sanctions like fines and punitive damages and protracted legal costs from litigation and appeals. The researchers have examined that longer-term consequences of illegality may vary with the seriousness of wrongdoing as because the serious violations have heavy fines and other penalties and also damage to a firm’s reputation as well as have much negative publicity.

It is also revealed that multiple convictions relate negatively to firm’s longer-term financial performance than that of unconvicted firms or single-conviction firms and the unconvicted firms have higher sales growth and high income from a given level of sales than that of convicted firms. The illegal corporate behaviour also leads to the unlawful activities that consist of insider trading, corruption, tax fraud, price fixing, bid rigging, accounting fraud and theft or employee enrichment, involving members or agents or employees or managers of a firm. It has short-term and long-term consequences of corporate illegality. The corporate offenders have misguided the process of consequences of wrongdoing by providing unreliable data which results in civil fines. The punishment for this corporate illegality cost high to higher on long-term.

b) How long does a company feel the impact of illegal behavior?

The company feel the impact of illegal behavior in short-term and long-term consequences. The punishment for the illegal corporate behaviour cost high to higher on long-term consequences. If illegality is detected in short-term consequences, then the company is penalised with the costs of wrongdoing and it shows the negative impact on performance. But, in the long-term consequences, as the firms suffer prolonged damage from illegality, managers mount defensive efforts to mitigate short-term effects of wrongdoing by incurring direct costs of sanctions like fines and punitive damages and protracted legal costs from litigation and appeals. The researchers have examined that longer-term consequences of illegality may vary with the seriousness of wrongdoing as because the serious violations have heavy fines and other penalties and also damage to a firm’s reputation as well as have much negative publicity.

c) How does the market react to corporate illegal behavior?

The corporate illegal behaviour results in civil fines as the convicted firms have provided unreliable data during the process of consequences of wrongdoing. The punishment for this corporate illegality cost high to higher on long-term. The researchers have also analyzed firm performance and subsequent illegality compared to other firms. They also focussed on causes of corporate illegality to find out what happens after a firm engages in and is convicted of illegal acts. The convicted firms generate lower accounting return after a conviction which results in lower revenues or higher costs and it’s reduce sales growth indicates that customers may react more slowly to wrongdoing than other stakeholders.

To overcome from this situation, managers employ defensive tactics to overstate revenues, strive to avoid the label of corporate wrongdoer and worry about damage to a firm’s reputation. The managers also recognize the costs of wrongdoing and the likely negative impact on performance if illegality is detected and punished in short-term consequences. But, in the long-term consequences, as the firms suffer prolonged damage from illegality, managers mount defensive efforts to mitigate short-term effects of wrongdoing by incurring direct costs of sanctions like fines and punitive damages and protracted legal costs from litigation and appeals.

d) What are the financial costs of violating the behavior?

The financial costs of violating the behaviour are depend on whether the firms are engaged in single conviction or on multiple conviction. The multiple convictions relate negatively to firm’s longer-term financial performance than that of unconvicted firms or single-conviction firms and the unconvicted firms have higher sales growth and high income from a given level of sales than that of convicted firms. The financial costs also depend on short-term and long-term consequences. The punishment for the illegal corporate behaviour cost high to higher on long-term consequences. If illegality is detected in short-term consequences, then the company is penalised with the costs of wrongdoing and it shows the negative impact on performance. But, in the long-term consequences, as the firms suffer prolonged damage from illegality, managers mount defensive efforts to mitigate short-term effects of wrongdoing by incurring direct costs of sanctions like fines and punitive damages and protracted legal costs from litigation and appeals. The researchers have examined that longer-term consequences of illegality may vary with the seriousness of wrongdoing as because the serious violations have heavy fines and other penalties and also damage to a firm’s reputation as well as have much negative publicity.