Does Corporate Governance Failure Facilitate Crime? An empirical study of companies domiciled in the US using textual data analysis

Abstract

This thesis aims to investigate whether corporate governance failures facilitate crime. There is an arising awareness of corporate crime and the huge consequences of corporate governance failures. Therefore, we explore if certain corporate governance features are used differently by companies that have been convicted of corporate crime, compared to companies that have not. Previous literature gives indications of how some corporate governance features can be misused to facilitate crime and we want to elaborate on this literature by investigating the changes in corporate governance features around the time of crimes. We explore the changes in audit firm, the changes of board members, the changes in the share of female directors and the share of tax haven subsidiaries and secrecy jurisdiction subsidiaries. We investigate these relationships by using a difference-in-difference design, which allows us to discover differences in the companies’ behavior relating to these corporate governance features. In addition, we conduct an event study that unveils trends around the period of the crime and the conviction date. The results of our analysis show indications that companies who commit crime behave differently than companies who have not with regards to the changes in the share of female directors around the time of the crime. They also behave differently with regards to changes in auditor firms, board members and tax haven subsidiaries around the time of the conviction. On the contrary, no evidence is found with regards to a relationship between the share of secrecy jurisdiction subsidiaries and crime. As companies that commit crime use several corporate governance features in a different way than similar companies that have not committed crime, our results suggest that some corporate governance features are used to facilitate crime.