The Peer Effect of Punishment of Firm Executives

This paper investigates whether and how the punishment of peer firm managers impacts firm misconduct. Having witnessed that peer firm managers experience adverse consequences for their wrongdoings, managers of focal firms would receive vicarious negative reinforcement, thus reducing their deviant behaviors. Employing a difference-in-differences (DID) design, we find that punishment of firm executives significantly discourages peer firm misconduct. This effect is more prominent when observing firms are SOEs. Our results are robust to a battery of sensitivity tests