2023 Articles

Corporate Liability, Collateral Consequences, and Capital Structure

Atkinson, Nathan

Financial penalties imposed on malfeasant corporations can produce “collateral consequences,” or unintended negative impacts on employees, customers, and society more broadly. I show that the vast majority of government bodies that assess organizational penalties have adopted policies to reduce corporate liability where collateral consequences might otherwise result. Moreover, I demonstrate that officials do reduce penalties in line with these policies, undermining deterrence and compensation of harmed parties. However, evidence from reductions given to publicly-traded firms suggests that officials are often wrong in their assessment of firms’ financial health, thereby awarding reductions to healthy firms where collateral consequences are unlikely to occur. I discuss how officials should approach imposing penalties when they are concerned about prospective collateral consequences.