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Compliance Programs, Signaling and Firms’ International Coordination
Fines imposed on firms for corporate infringements such as cartels re- duce 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). In- vestments can be...
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| Published in: | MAGKS - Joint Discussion Paper Series in Economics (Band 49-2017) |
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| Main Author: | |
| Format: | Article |
| Language: | English |
| Published: |
Philipps-Universität Marburg
2017
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| Subjects: | |
| Online Access: | PDF Full Text |
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| Summary: | Fines imposed on firms for corporate infringements such as cartels re-
duce 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). In-
vestments 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 commit-
ment 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 infringe-
ment does not pay off for the firm. However, imposing sanctions on
the employee unambiguously deters violation. |
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| Physical Description: | 24 Pages |
| ISSN: | 1867-3678 |
| DOI: | 10.17192/es2024.0470 |