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1 – 10 of 995Andrea 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 Dodd–Frank 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.
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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 Dodd–Frank 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 Dodd–Frank, above what can be explained by size, firm performance and time. Total compensation increased following both SOX and Dodd–Frank 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 Dodd–Frank Act.
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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…
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.
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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 Dodd–Frank 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 Dodd–Frank 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.
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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…
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 Dodd‐Frank 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 Dodd‐Frank 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 Dodd‐Frank 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 Dodd‐Frank 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 Dodd‐Frank Act requirements now.
Originality/value
The paper provides expert guidance by experienced securities, derivatives and tax lawyers.
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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.
John E. McEnroe and Mark Sullivan
The Dodd–Frank Wall Street Reform and Consumer Protection Act calls for substantially increased government regulation. Whether those regulations are, in some sense, appropriate is…
Abstract
The Dodd–Frank 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 Dodd–Frank 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 Dodd–Frank legislation. It concludes that there is support among these individuals for some aspects of Dodd–Frank, but no consensus.
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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.
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The Dodd‐Frank Act of 2010 is the keystone policy response directed at reforming US financial system activities and oversight in the wake of the 2007‐2009 financial crisis. The…
Abstract
Purpose
The Dodd‐Frank Act of 2010 is the keystone policy response directed at reforming US financial system activities and oversight in the wake of the 2007‐2009 financial crisis. The USA also has financial system reform policy commitments in the international arena, including in particular by virtue of its membership in the G20. The purpose of this paper is to consider US policy initiatives related to a core dimension of financial system reform: risks posed by systemically important financial institutions (“SIFIs”).
Design/methodology/approach
The paper provides a deta‘iled comparison of SIFI policy initiatives and timetables under both the Dodd‐Frank Act and the G20 agenda, as reflected in the ongoing work plan of the Financial Stability Board (FSB), and poses the question “Are US domestic and international financial system reform commitments in sync?”
Findings
The study finds that, fundamentally, the answer is “yes.” However, the comparison yields two caveats with potential policy implications. First, the two agendas differ in their relative emphasis on the coverage of both banks and nonbanks. The G20/FSB focus, at least over the near‐term, is bank‐centric compared with the Dodd‐Frank Act, which consistently addresses both bank and nonbank financial firms. Second, implementation of Dodd‐Frank Act provisions is subject to long‐established US law mandating that there be sufficient opportunity for public input into the rulemaking process, whereas the G20/FSB process has been less systematic and transparent on public consultation and feedback.
Practical implications
These observations may be relevant to the current debate over the speed and scope of Dodd‐Frank Act implementation measures, and to the discussion about the future international competitiveness of US banks and nonbank financial firms.
Originality/value
This study is the first to present a detailed, comprehensive comparison of financial system reform initiatives and provisions in the Dodd‐Frank Act and the G20 agenda.
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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 tax…
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 Dodd–Frank 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 Dodd–Frank 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 Dodd–Frank 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.
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