Negation of Sanctions: The Personal Effect of Political Contributions

Abstract

Using data on political contributions and government enforcement actions from 1999 through 2010, we document a negative relationship between political contributions and the severity of government enforcement outcomes. Specifically, a $10,000 increase in contributions is associated with a reduction in the number of years accused executives are penalized with an officer ban (0.47 fewer years), probation (0.19 fewer years) and prison (0.32 fewer years), as well as the probability of receiving the harshest penalty from each agency (10%). Executives who personally contribute see similar effects. Results are robust to controlling for alternate reasons for disparate penalties (net benefit to shareholders and earned leniency), alternate discipline mechanisms (class action lawsuits, termination by the board, and firm delisting), and the level of discretion the agencies have in imposing penalties. We find some evidence to support a delay mechanism in criminal sanctions.