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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…

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…

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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Book part
Publication date: 16 October 2015

Steven Mintz

The Dodd-Frank Financial Reform Act sets new whistleblowing standards for internal accountants and external auditors who fail to resolve differences internally with top…

Abstract

The Dodd-Frank Financial Reform Act sets new whistleblowing standards for internal accountants and external auditors who fail to resolve differences internally with top management on financial reporting matters. Whistleblowers are eligible to receive a financial reward under Dodd-Frank if they “voluntarily” provide “original” information and meet other criteria. Interpretation 102-4 of the American Institute of Certified Public Accountants Code establishes reporting obligations for external auditors to meet the requirements of Dodd-Frank. The purpose of this paper is to critically evaluate the standards to better understand the whistleblowing process. A review of the literature identifies areas of concern in deciding whether to blow the whistle. The paper contributes to the literature by integrating thoughts, ideas, and issues raised by prior researchers and considerations specific to the whistleblowing process. The analysis results in the proposal of specific unanswered questions about the process that can guide future researchers.

Details

Research on Professional Responsibility and Ethics in Accounting
Type: Book
ISBN: 978-1-78441-666-9

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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…

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.

Article
Publication date: 8 June 2012

James M. Cain, Daphne G. Frydman, David Roby, Michael Koffler and Raymond A. Ramirez

The purpose of this paper is to explain legislative and regulatory changes and related developments that will be of interest to hedge funds and other private funds as they…

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Abstract

Purpose

The purpose of this paper is to explain legislative and regulatory changes and related developments that will be of interest to hedge funds and other private funds as they traverse the shifting regulatory landscape in 2012.

Design/methodology/approach

The paper provides a general overview of the new regulatory regime that the DoddFrank Act imposes on over‐the‐counter (OTC) derivatives; describes the rescission of a regulatory exclusion from the commodity pool operator (CPO) definition that was previously available to registered investment companies and the repeal of an exemption from CPO registration requirements for operators of funds whose shares are exempt from registration under the Securities Act of 1933; discusses proposed changes to CPO and commodity trading advisor (CTA) compliance requirements; discusses DoddFrank Act changes to existing securities laws and regulations, including with respect to large trader reporting and investment advisers; highlights some of the concerns raised by MF Global, Inc.’s collapse; and describes recent tax law developments.

Findings

The paper reveals that the DoddFrank Act significantly alters the space within which hedge funds and other private funds currently operate.

Practical implications

Whereas the majority of the regulations to implement the DoddFrank Act have yet to become effective, federal regulators are working diligently to implement their mandates and hedge funds and other private funds should begin preparing to comply with the new DoddFrank Act requirements now.

Originality/value

The paper provides expert guidance by experienced securities, derivatives and tax lawyers.

Details

Journal of Investment Compliance, vol. 13 no. 2
Type: Research Article
ISSN: 1528-5812

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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…

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

Book part
Publication date: 15 August 2014

John E. McEnroe and Mark Sullivan

The DoddFrank Wall Street Reform and Consumer Protection Act calls for substantially increased government regulation. Whether those regulations are, in some sense…

Abstract

The DoddFrank Wall Street Reform and Consumer Protection Act calls for substantially increased government regulation. Whether those regulations are, in some sense, appropriate is a function of whether the benefits of the increased regulation exceed the costs. Those costs and benefits, however, are probably impossible to measure, at least at this early stage of the implementation of the DoddFrank reforms. On the other hand, financial professionals who regularly deal with governmental regulations probably have a good sense of the costs and benefits based on their own experience with other similar regulations. This chapter reports the result of a survey of high-level auditors and CFOs regarding their perceptions of the costs and benefits of the main parts of the financial regulatory reform incorporated into the DoddFrank legislation. It concludes that there is support among these individuals for some aspects of DoddFrank, but no consensus.

Details

Managing Reality: Accountability and the Miasma of Private and Public Domains
Type: Book
ISBN: 978-1-78052-618-8

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Book part
Publication date: 17 October 2014

Moin A. Yahya

Making law in America is not a simple task. It can be legislated by Congress, enforced by the executive, interpreted by the courts, and augmented by a massive body of…

Abstract

Making law in America is not a simple task. It can be legislated by Congress, enforced by the executive, interpreted by the courts, and augmented by a massive body of rules created by administrative agencies such as the Securities and Exchange Commission (SEC). The Dodd-Frank Wall Street Reform and Consumer Protection Act (2010) (Dodd-Frank was passed) with an eye to preventing future financial crises. Four years later, many details of Dodd-Frank have yet to be finalized as the SEC is still in the process of developing the regulations that the legislation required them to create. Even once the regulations are finalized by the SEC, the regulations will be challenged by various parties in the courts. The regulations will be either upheld or rejected. Those that are upheld will then face numerous challenges when applied in specific cases, while those rejected will have to be redone all over again. The process of developing these regulations is cumbersome and attracts many of the special interests that were present in the legislative phase of Dodd-Frank and who will also be present in the litigation phases of testing Dodd-Frank in the courts. This paper focuses on the requirement that investment advisors and broker-dealers be deemed as owing fiduciary duties to their clients as a case study for the entangled political economy theory. The paper shows how the development of a simple rule such as whether these fiduciary duties should be owed or not requires years of back and forth between the legislative, executive, administrative, and judicial branches.

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…

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: 27 April 2022

Justin Jin, Yi Liu, Zehua Zhang and Ran Zhao

The purpose of this paper is to investigate whether and how banks’ financial constraints affect their cash tax avoidance. The authors hypothesize that banks engage in more…

Abstract

Purpose

The purpose of this paper is to investigate whether and how banks’ financial constraints affect their cash tax avoidance. The authors hypothesize that banks engage in more tax planning to generate additional cash to mitigate their financial constraints.

Design/methodology/approach

The authors use a sample of US banks to conduct the panel regression analysis. The authors measure the bank tax avoidance using the cash effective tax rate and measure the bank financial constraints using the Z-score and annual payout ratio. The authors further use the implementation of the DoddFrank Act as a quasi-natural experiment to conduct the difference-in-difference analysis.

Findings

The authors document that financially constrained banks exhibit lower cash effective tax rates. The authors further show that banks facing greater financial constraints are less likely to pursue tax-saving activities following the DoddFrank Act. Moreover, the authors find that non-performing loans increase the influence of financial constraints on tax avoidance, while a financial crisis amplifies the impact of financial constraints on bank cash tax savings.

Originality/value

By extending previous research on financial constraints and tax planning, this paper is the first study to recognize financial constraints, along with the DoddFrank Act, as determinants of banks’ tax avoidance. This study informs policymakers about the regulation of tax avoidance in the banking industry and sheds light on possible future research on banks’ tax-planning strategies.

Details

Review of Accounting and Finance, vol. 21 no. 3
Type: Research Article
ISSN: 1475-7702

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