Person: Heese, Jonas
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Heese, Jonas
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Publication The Department of Justice as a Gatekeeper in Whistleblower-initiated Corporate Fraud Enforcement: Drivers and Consequences(Elsevier BV, 2021-02) Heese, Jonas; Krishnan, Ranjani; Ramasubramanian, HariWe examine drivers and consequences of U.S. Department of Justice (DOJ) oversight of whistleblower cases of corporate fraud against the government. We find that the DOJ is more likely to intervene in and conduct longer investigations of cases that have a higher chance of victory and yield greater monetary proceeds, indicating that DOJ enforcement is influenced by its performance measures. DOJ intervention also affects the firm- and aggregate-level fraud environment. Firms subject to DOJ intervention improve their employee relations, internal controls, and board independence, and experience lower future whistleblowing risk. Whistleblowers avoid courts and agencies with low DOJ intervention rates. In contrast, we do not find that cases pursued by whistleblowers alone affect firms’ or whistleblowers’ behavior, suggesting that public enforcement through DOJ intervention has a greater deterrent effect on fraud than private enforcement by whistleblowers acting alone.Publication When the Boss Comes to Town: The Effects of Headquarters' Visits on Facility-Level Misconduct(American Accounting Association, 2020-11) Heese, Jonas; Perez Cavazos, GerardoWe study the effects of headquarters’ visits on facility-level misconduct. We use the staggered introduction of airline routes to identify exogenous travel-time reductions between headquarters and facilities and test whether such reductions affect facility-level misconduct. We find that, on average, a travel-time reduction decreases the number of facility-level violations by 2% and associated penalties by 23.4%, indicating that management focuses on reducing costlier violations as opposed to simply reducing the number of violations. The effects are concentrated in firms with weaker control systems, suggesting that strong controls can act as substitutes for visits. Further, the introduction of broadband internet attenuates, but does not eliminate, the effect of visits on misconduct. Lastly, we find that visits result in greater facility-level misconduct when firms are subject to strong performance pressure. Overall, our study provides a nuanced understanding of the effects of on-site visits on facility-level misconduct.Publication When Executives Pledge Integrity: The Effect of the Accountant’s Oath on Firms’ Financial Reporting(American Accounting Association, 2023-10-23) Heese, Jonas; Pérez-Cavazos, Gerardo; Peter, Caspar DavidWe study the effect of executives’ pledges of integrity on firms’ financial reporting outcomes by exploiting a 2016 regulation that requires holders of Dutch professional accounting degrees to pledge an integrity oath. We identify chief executive officers (CEOs) and chief financial officers (CFOs) required to take the integrity oath and find that firms reduce income-increasing discretionary accruals after executives took the oath. These firms also reduce discretionary expenditures, indicating that oath-taking executives reduce overall earnings management and do not merely substitute accruals-based with real-activities earnings management. These effects are concentrated in firms where the CFO took the oath. Overall, our results indicate that integrity oaths for executives improve firms’ financial reporting quality. Data Availability: Data are available from the public sources cited in the text.Publication Government Preferences and SEC Enforcement(2015-01-09) Heese, JonasI examine whether political influence by the government as a response to voters’ interest in employment conditions is reflected in the enforcement actions of the Securities and Exchange Commission (SEC). I find that large employers are less likely to be subject to an SEC enforcement action, after controlling for firm size, accounting quality, distance to SEC office, and political contributions, among other factors. Next, I show that large employers are less likely to face an SEC enforcement action in presidential election years if they are headquartered in politically important states. I also find that firms that employ a larger proportion of a congressional district’s total workforce and are located in districts with high unemployment rates are less likely to be subject to an SEC enforcement action if the incumbent congressman serves on a committee that oversees the SEC. These findings suggest that voters’ interests are reflected in SEC enforcement.Publication Regulator Leniency and Mispricing in Beneficent Nonprofits(2015-01-09) Heese, Jonas; Krishnan, Ranjani; Moers, FrankWe posit that nonprofits that provide a greater supply of unprofitable services (beneficent nonprofits) face lenient regulatory enforcement for mispricing in price-regulated markets. Consequently, beneficent nonprofits exploit such regulatory leniency and exhibit higher mispricing. Drawing on organizational legitimacy theory, we argue that both regulators and beneficent nonprofits seek to protect their legitimacy with stakeholders, including those who demand access to unprofitable services. Using data from hospitals, we examine mispricing via “upcoding”, which involves misclassifying ailment severity. Archival analysis indicates less stringent regulatory enforcement of upcoding for beneficent nonprofit hospitals, defined as hospitals that provide higher charity care and medical education. After observing regulator leniency, beneficent hospitals demonstrate higher upcoding. Our results suggest that lenient enforcement assists beneficent nonprofits to obtain higher revenues in price-regulated markets.Publication Is the SEC captured? Evidence from comment-letter reviews(2017-06-28) Heese, Jonas; Khan, Mozaffar; Ramanna, KarthikSEC oversight of publicly listed firms ranges from comment letter (CL) reviews of firms’ reporting compliance to pursuing enforcement actions against violators. Prior literature finds that firm political connections (PC) negatively predict enforcement actions, inferring SEC capture. We present new evidence that firm PC positively predict CL reviews and substantive characteristics of such reviews, including the number of issues evaluated and the seniority of SEC staff involved. These results, robust to identification concerns, are inconsistent with SEC capture and indicate a more nuanced relation between firm PC and SEC oversight than previously suggested.Publication The Effect of Retaliation Costs on Employee Whistleblowing(Elsevier BV, 2021-04) Heese, Jonas; Pérez-Cavazos, GerardoWe use large increases in unemployment insurance (UI) benefits to study the effects of expected retaliation costs on employee whistleblowing. Increases in UI benefits reduce the costs that arise from a job loss, one of the costliest forms of retaliation. We find that increases in UI benefits increase the number of facility-level employee workplace safety complaints filed with the regulator. Furthermore, UI benefit increases also result in more violations and more penalties. The effects are concentrated in firms where retaliation is more likely as measured by weaker employee relations, internal controls, and monitoring. Our findings show the importance of reducing retaliation costs to tap into employees’ knowledge of misconduct.Publication The Political Influence of Voters’ Interests on SEC Enforcement(Wiley, 2019-07) Heese, JonasI examine whether political influence as a response to voters’ interest in employment levels is reflected in the enforcement actions of the Securities and Exchange Commission (SEC). I find that large employers are less likely to experience SEC enforcement actions. Next, I examine whether variations in politicians’ sensitivity to employment levels result in variations in enforcement against large employers. I find that large employers are less likely to face enforcement actions during presidential elections if they are based in politically important states. Large employers also face fewer enforcement actions if they are based in high-unemployment states during elections of senators who serve on SEC oversight committees. Large employers based in high-unemployment districts enjoy lower enforcement if their congressmen serve on SEC oversight committees. The findings suggest that voters’ interests are reflected in SEC enforcement.Publication Selective Regulator Decoupling and Organizations’ Strategic Responses(Academy of Management, 2016-12) Heese, Jonas; Krishnan, Ranjani; Moers, FrankOrganizations often respond to institutional pressures by symbolically adopting policies and procedures but decoupling them from actual practice. Literature has examined why organizations decouple from regulatory pressures. In this study, we argue that decoupling occurs within regulatory agencies and results from a combination of conflicting institutional pressures, complex goals, and internal fragmentation. Further, regulatory decoupling is selective, i.e., regulators fail to adequately enforce standards only for one set of organizations. Regulated organizations that benefit from selective regulatory decoupling use non-market strategies to maintain their favorable regulatory status and in the process selectively decouple their norms in one organizational activity but not others. As an empirical context, we use the hospital industry where regulators have to balance conflicting pressures to be tough on fraud, while maintaining the community’s access to essential but unprofitable services such as charity care and medical education. In response, hospital regulators selectively decouple and exhibit leniency in enforcement of mispricing practices towards beneficent hospitals, defined as hospitals that provide more charity care and medical education. In turn, beneficent hospitals selectively decouple their service and profit goals by providing unprofitable services to uninsured patients, while mispricing insured patients to earn higher reimbursements.Publication When the Local Newspaper Leaves Town: The Effects of Local Newspaper Closures on Corporate Misconduct(Elsevier BV, 2022-08) Heese, Jonas; Pérez-Cavazos, Gerardo; Peter, Caspar DavidWe examine whether the local press is an effective monitor of corporate misconduct. Specifically, we study the effects of local newspaper closures on violations by local facilities of publicly listed firms. After a local newspaper closure, local facilities increase violations by 1.1% and penalties by 15.2%, indicating that the closures reduce firm monitoring by the press. This effect is not driven by the underlying economic conditions, the underlying local fraud environment, or the underlying firm conditions. Taken together, our findings indicate that local newspapers are an important monitor of firms’ misconduct.