Compliance Programs, Signaling and Firms' Internal Coordination

Daniel Herold ()
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Daniel Herold: Justus-Liebig-University Giessen

MAGKS Papers on Economics from Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung)

Abstract: Fines imposed on firms for corporate infringements such as cartels reduce these infringement's profitability. When a manager knows when a violation is unprofitable he can prevent violations committed by an uninformed employee by investing in compliance programs (CPs). Investments can be interpreted as signals. The paper shows that there exists a separating equilibrium where high investments in CPs induce the employee to obey the law. However, if CPs are too expensive the signal is not credible. The manager can also show personal commitment to compliance ('tone-at-the-top'). Coordination on an efficient outcome will then be achievable if commitment is costly. Imposing high, individual sanctions on the manager disturbs a firm's internal coordination because he is unable to credibly signal that an infringement does not pay off for the firm. However, imposing sanctions on the employee unambiguously deters violation.

Keywords: Bitcoin; Compliance; Crime; Tone-at-the-top (search for similar items in EconPapers)
JEL-codes: D82 D86 K20 K21 L14 L22 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2017
New Economics Papers: this item is included in nep-bec, nep-com, nep-law and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:mar:magkse:201749

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