DescriptionThe stock market provides investors with opportunities for wealth creation, but also allows corporations and brokers to commit securities fraud. To date, criminologists have paid little attention to corporate securities fraud and this dissertation is designed to shed light on the problem from a criminological perspective. It compares the extent to which the rational choice perspective and corporate structure theory can help explain corporate crime.
Using a case-control design, this research compares two groups of companies, litigated and non-litigated by the Securities and Exchange Commission (SEC). The comparison was made in terms of size, financial performance, top management, and board structure, while controlling for industry and geographic location. The case group consists of 188 companies litigated by the SEC for securities fraud between 1999 and 2003. Another 188 companies which never have been litigated by the SEC served as the control group. The data were drawn from the COMPUSTAT North America database and the companies’ annual reports and proxy statements which are available from the SEC website.
A Chi-Square analysis was used to analyze the relationship between firm size (independent variable) and litigation status (dependent variable), which was found to be statistically significant. Given that firm size might well affect the relationship between litigation status and other independent variables, a second group of control companies was selected while controlling for one more variable, firm size. Logistic regression was conducted to compare proposed causal variables and predict litigation status between litigated group and non-litigated group. The results found that small companies are more likely to be litigated. In addition, while average age of top management and financial performance are not significantly related to litigation status, length of service for top management and board structure are strongly associated with a company’s litigation status. These results provided support for the rational choice theory-related hypotheses. In particular, although firm size is significantly related to litigation status, the direction of the relationship is not consistent with the hypothesis based on the corporate structure theory.