Agency Costs and Enforcement of Management Controls : Analyzing Punishments for Perpetrators of Economic Crimes

We examine the severity of punishments for employees who perpetrate economic crimes to understand how aggressively organizations enforce compliance with management control systems. Our dataset comprises 608 organizations around the world that identified they experienced economic crime. We find wide variation in rates of dismissal and legal action against the primary perpetrators. Further, punishment rates are lower for senior management than for middle managers and junior staff. We document that the negative relation between seniority and punishment severity holds only for senior male perpetrators; senior female perpetrators receive harsher punishments than senior males. These findings are more pronounced in organizations that operate in countries with more gender inequality, have less frequent updates to internal control, do not report the crime to regulators, and do not disclose their identity in the survey. We interpret these findings as evidence of agency costs by punishment decision-makers in setting more lenient punishments for senior perpetrators from their own male social networks