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Book part
Publication date: 30 September 2019

Andrea M. Scheetz and Joseph Wall

With the increasing prevalence of awards for reporting fraudulent activity, it is important to learn if there are unintended consequences associated with the language offering…

Abstract

With the increasing prevalence of awards for reporting fraudulent activity, it is important to learn if there are unintended consequences associated with the language offering such awards. Aside from issues regarding submitting unsubstantiated claims of fraud to the Securities and Exchange Commission (SEC), Section 922 of the DoddFrank Act may inadvertently encourage would-be whistleblowers to delay reporting fraud. Potential whistleblowers may choose to delay reporting due to the consideration of alternatives to external reporting, in a misguided attempt to increase the size of an award, or due to their ethical stance on the issues. Using a three-stage mixed methods (experiment, open-ended interviews, and experiment) approach, this study provides evidence that increased knowledge of statutes involving external whistleblowing may result in reporting delays. The data suggest that despite statements from the SEC forbidding this, managers may choose to delay reporting when under the threshold necessary to receive an award. In such a manner, managers may be allowing the fraud to grow to a necessary perceived level over time. As might be expected, the accountants in this study were more cautious, checking to see if internal reporting worked first. Of particular note, 16 individuals indicated that they would never report, with the motivation apparently driven by fear of job loss and/or retaliation. Lastly, the intention to delay or speed up reporting may be very different based on the perception of ethics involved in the decision.

Details

Research on Professional Responsibility and Ethics in Accounting
Type: Book
ISBN: 978-1-78973-370-9

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Article
Publication date: 24 June 2019

Linda Hughen, Mahfuja Malik and Eunsup Daniel Shim

The recent economic and political focus on rising income inequality and the extent of government intervention into pay policies has renewed the interest in executive compensation…

Abstract

Purpose

The recent economic and political focus on rising income inequality and the extent of government intervention into pay policies has renewed the interest in executive compensation. The purpose of this paper is to examine the impact of changing regulatory landscapes on executive pay and its components.

Design/methodology/approach

This study examines a recent 23-year period divided into three distinct intervals separated by two major regulatory changes, the Sarbanes–Oxley Act (SOX) and the DoddFrank Act. Bonus, long-term and total compensation are separately modeled as a function of each regulatory change while controlling for firm size, performance and year. The model is estimated using panel data with firm fixed effects. An industry analysis is also conducted to examine sector variations.

Findings

Total compensation increased 29 percent following SOX and 21 percent following DoddFrank, above what can be explained by size, firm performance and time. Total compensation increased following both SOX and DoddFrank in all industries except for the financial services industry where total compensation was unchanged. Results are robust to using smaller windows around each regulation.

Research limitations/implications

This study does not seek to determine whether executive compensation is at an optimal level at any point in time. Instead, this study focuses only on the change in executive compensation after two specific regulations.

Originality/value

The debate over the extent to which the government should intervene with executive compensation has become a frequent part of political and non-political discourse. This paper provides evidence that over the long-term, regulation does not curtail executive compensation. An important exception is that total compensation was restrained for financial services firms following the DoddFrank Act.

Details

Journal of Applied Accounting Research, vol. 20 no. 3
Type: Research Article
ISSN: 0967-5426

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Article
Publication date: 1 March 2015

Ann M. Johnson

In 2010 the Dodd-Frank Law was passed in response to the 2008 recession. However, questions arose regarding the federal agenciesʼ ability to regulate the economy in general and…

Abstract

In 2010 the Dodd-Frank Law was passed in response to the 2008 recession. However, questions arose regarding the federal agenciesʼ ability to regulate the economy in general and the utility of financial regulations in particular. This work examines and discusses the challenges associated with the uncertainty of the administrative environment in which agencies have been drafting regulations in response to Dodd-Frank. A lack of administrative clarity as a result of Congressional politics led to regulatory capture and operational paralysis on the part of federal agencies tasked with implementing the Act. In this type of environment it becomes very difficult for regulatory agencies to be effective and competent when regulations have not all been drafted yet and legislation is continuously changing. This article critically examines the recent proposed changes to the Dodd-Frank Law. Specifically, it delineates the manner in which the legislative instability has impacted the Federal Reserve Bankʼs capacity to effectively implement the necessary rules for mitigating economic risks.

Details

International Journal of Organization Theory & Behavior, vol. 18 no. 4
Type: Research Article
ISSN: 1093-4537

Article
Publication date: 1 March 2013

Craig L. Johnson

In response to the financial crisis that began in 2007, United States President Barack Obama signed H.R. 4173, the Dodd-Frank Wall Street Reform and Consumer Protection Act, into…

Abstract

In response to the financial crisis that began in 2007, United States President Barack Obama signed H.R. 4173, the Dodd-Frank Wall Street Reform and Consumer Protection Act, into law on July 21, 2010. “Dodd-Frank” is intended to correct certain problems in financial markets by federally regulating the activities of independent municipal financial advisors and comprehensively expanding regulatory oversight over credit rating agencies. This article reviews the legislation and its financial management rationale, and discusses its actual and potential impact on the future operations of the municipal securities market and its participants.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 25 no. 2
Type: Research Article
ISSN: 1096-3367

Article
Publication date: 6 September 2018

Aegis Frumento and Stephanie Korenman

The purpose of this paper is to analyze the Supreme Court’s recent decision in Digital Realty Trust, Inc v. Somers and its significance for whistleblower retaliation remedies and…

Abstract

Purpose

The purpose of this paper is to analyze the Supreme Court’s recent decision in Digital Realty Trust, Inc v. Somers and its significance for whistleblower retaliation remedies and securities law interpretation generally.

Design methodology approach

The authors review the statutory, regulatory and decisional history of the anti-whistleblower retaliation remedies of the Sarbanes–Oxley Act and the DoddFrank Act; how they were seen by the US Securities and Exchange Commission (SEC) and most courts to be in conflict, and how they were ultimately harmonized by the Supreme Court in Digital Realty.

Findings

In Digital Realty, the Supreme Court ruled against the SEC and the leading Courts of Appeal and established that only one who reports securities law violations to the SEC can sue in federal court under the DoddFrank Act; all others are limited to the lesser remedies provided by the Sarbanes–Oxley Act. This simple conclusion raises a number of unresolved questions, which the authors identify and discuss. Also, the Supreme Court unanimously continued the pattern of federal securities laws decisions marked by a close reading of the text and a desire to limit private litigants’ access to the federal courts.

Originality value

This paper provides valuable information and insights about the legal protections for SEC whistleblowers from experienced securities lawyers and more generally on the principles that appear to guide securities law decisions in the Supreme Court.

Case study
Publication date: 20 January 2017

George (Yiorgos) Allayannis and Adam Risell

In October, the CEO of JPMorgan Chase & Co., is preparing for the company's 2010 Q3 earnings conference call and wondering how to address the inevitable questions related to…

Abstract

In October, the CEO of JPMorgan Chase & Co., is preparing for the company's 2010 Q3 earnings conference call and wondering how to address the inevitable questions related to financial reform. It has been just over two months since the Dodd-Frank Financial Reform and Consumer Protection Act (Dodd-Frank Act) had been passed, and there was still much uncertainty as to how JPMorgan should address the reforms. JPMorgan had reported stronger than expected EPS in the third quarter, but analysts were more concerned about what strategic initiatives the CEO would implement in response to the Dodd-Frank Act. The act had introduced wide-ranging and industry-changing reforms that were aimed primarily at fully integrated financial institutions such as JPMorgan. While most of the rulemaking would be forthcoming from regulatory authorities, the CEO knew it would be best to address these issues immediately to protect shareholders by avoiding uncertainty.

Details

Darden Business Publishing Cases, vol. no.
Type: Case Study
ISSN: 2474-7890
Published by: University of Virginia Darden School Foundation

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Article
Publication date: 7 September 2012

Allison Lurton, Bruce Bennett, William Massey, Robert Fleishman, Mark Herman, Michael Sorrell and Ronald Hewitt

The aim of the paper is to explain the joint final rules adopted on April 18, 2012 by the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission…

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Abstract

Purpose

The aim of the paper is to explain the joint final rules adopted on April 18, 2012 by the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) further defining the major categories of swap and security‐based swap market participants, “swap dealer“, “security‐based swap dealer”, “major swap participant”, “major security‐based swap participant” and “eligible contract participant” and to explain the process of evaluating a party's status under the rules.

Design/methodology/approach

The paper provides the statutory definition of a dealer, and explains the CFTC's and the SEC's interpretive guidance, including four tests and a discussion of the CFTC and SEC dealer trader distinctions, swaps not considered in determining dealer status, and a de minimis exception. It provides the statutory definition of a major participant, along with the four major categories of swaps and an explanation of the “substantial position”, “substantial counterparty exposure” and “highly leveraged” criteria, along with the exclusion of positions held for hedging or mitigating commercial risk from the substantial position analysis. A DoddFrank amended definition of an eligible contract participant (ECP) along with the final ECP rules is provided.

Findings

All swap market participants will need to know whether they qualify as one of these entities because each type of entity figures prominently in the new swap market requirements imposed by the DoddFrank Act.

Originality/value

The paper provides practical guidance from experienced financial services lawyers.

Details

Journal of Investment Compliance, vol. 13 no. 3
Type: Research Article
ISSN: 1528-5812

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Article
Publication date: 13 September 2011

Michael E. Clark, Laurence S. Lese and F. Reid Avett

Recently, the US Securities and Exchange Commission (SEC) adopted final rules for the expanded whistleblower program established by the DoddFrank Wall Street Reform and Consumer…

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Abstract

Purpose

Recently, the US Securities and Exchange Commission (SEC) adopted final rules for the expanded whistleblower program established by the DoddFrank Wall Street Reform and Consumer Protection Act. The rules raise challenging issues, perhaps the most significant being their impact on existing compliance and corporate governance procedures. This paper seeks to examine this issue.

Design/methodology/approach

The paper analyzes the final rules and their impact on public companies.

Findings

Publicly listed entities have cause for concern that their existing compliance programs may be bypassed by whistleblowers who now have strong incentives to place personal interests ahead of loyalties to employers.

Practical implications

Companies need to improve their compliance programs to limit the potential hazards.

Originality/value

The proffered “steps to potentially minimize DoddFrank whistleblowers” can help publicly traded companies – and particularly multinational enterprises subject to the Foreign Corrupt Practices Act – to avoid the significant risks that DoddFrank presents to them.

Details

Journal of Investment Compliance, vol. 12 no. 3
Type: Research Article
ISSN: 1528-5812

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Article
Publication date: 31 July 2020

John S. Howe and Thibaut G. Morillon

This paper aims to investigate the consequences of mergers and acquisitions (M&As) on information asymmetry in the banking sector. Specifically, the authors look at whether…

Abstract

Purpose

This paper aims to investigate the consequences of mergers and acquisitions (M&As) on information asymmetry in the banking sector. Specifically, the authors look at whether specific firm or deal characteristic influence information asymmetry levels between insiders and investors, as well as the impact of recent regulation such as the DoddFrank Act.

Design/methodology/approach

The authors decompose the M&A process into three periods (pre-announcement, negotiation and post-completion period) and document changes in the information asymmetry levels between insiders and investors through the M&A process. The authors capture changes in information asymmetry using six different spread-based information asymmetry measures.

Findings

The authors find evidence that information asymmetry increases following M&A announcement and decreases following deal completion. These findings are more pronounced for acquisitions involving a private target, all-cash deals and for mergers, as opposed to acquisition of assets. We find that overall, successful mergers improve the quality of the information environment, while failed deals degrade it. Additionally, the enactment of DoddFrank reduced the magnitude of the changes in information asymmetry during the M&A process. The results are important to regulators, policy makers and investors.

Originality/value

To authors’ knowledge, this is the first study that looks at the effect of bank M&As on information asymmetry as well as the effect of regulations on information asymmetry.

Details

Managerial Finance, vol. 46 no. 12
Type: Research Article
ISSN: 0307-4358

Keywords

Expert briefing
Publication date: 11 April 2018

The Senate’s bill would dilute the 2010 Dodd-Frank Act, which tightened US financial and banking regulations in response to the 2007-08 financial crisis and subsequent recession.

Details

DOI: 10.1108/OXAN-DB232029

ISSN: 2633-304X

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