Fines and reputational sanctions: The case of cartels

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Abstract

In this article, we revive an old debate in the law and economics literature:
the relative role of public and reputational sanctions in deterring misconduct.
We propose an empirical framework, which accounts for public sanctions (in
our case cartel fines) and a more direct measure of reputational sanctions,
harnessing recent developments in opinion mining. We use the intensity and
the sentiment of media exposure of misconduct as a measure of reputational
effect and thus approximation of the reputational sanction. As a demonstra-
tion, we combine an event study approach, sentiment analysis, and econo-
metric techniques on a sample of 339 listed cartel member firms, prosecuted
by the European Commission between 1992 and 2015. Our results offer ev-
idence that in the context of cartels, public and reputational sanctions act
as substitutes: where there is a reputational penalty, increasing this penalty
reduces the effect of the public sanction. One the other hand, in the absence
of a reputational punishment, the effect of the cartel fine steps in.
Original languageEnglish
Article number102584
Number of pages29
JournalInternational Journal of Industrial Organization
Volume69
Early online date21 Feb 2020
DOIs
Publication statusPublished - Mar 2020

Keywords

  • Cartels
  • event study
  • public sanctions
  • reputational sanctions
  • Sentiment analysis
  • Event study
  • Reputational sanctions
  • Public sanctions
  • FRAUD
  • RETURNS
  • DETERRENT
  • EVENT
  • MARKET FORCES
  • LENIENCY
  • PENALTIES

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