Zubcic, Joseph and Sims, Robert (2011) Examining the link between enforcement activity and corporate compliance by Australian companies and the implications for regulators. International Journal of Law and Management, 53 (4). pp. 299-308. ISSN 1754-243X

Abstract

Purpose – The purpose of this paper is to examine the relationship between enforcement and compliance and to report on the results of an empirical study that assesses the impact of enforcement action by the Australian Securities and Investments Commission (ASIC) on the subsequent compliance by violators. Design/methodology/approach – Following an extensive literature review, a sample of 50 similar complaints made to ASIC during the 2005/2006 financial year, were selected and grouped into two samples. The first sample, described as the enforcement sample, comprised of complaints that had been resourced for investigation by ASIC, and the second sample, described as the non-enforcement sample, comprised of complaints that had not been resourced for investigation. An analysis was conducted to compare how many subsequent complaints had been received by ASIC in the following three years against members of the two samples. Findings – The empirical evidence of the decrease in subsequent complaints against corporate violators subject to enforcement action clearly supports the argument that enforcement action does have an impact on corporate compliance of those violators. However, it has to be acknowledged that differences in rates of subsequent violation still do not guarantee that there is a cause and effect relationship between compliance and enforcement, as it is possible enforcement action may have resulted in violators becoming better at avoiding detection and complaint. Research limitations/implications – The samples were limited to complaints identified in the 2005/2006 year and only taken from two of ASIC's five regulatory categories, so caution is required when interpreting and making generalisations from the results. Only three years of subsequent complaints were examined so the study was limited to the examination of relatively short-term effects of enforcement action. Practical implications – Corporate regulators such as ASIC now need to obtain and examine qualitative data from violators and potential violators to gain insights into their actions and motivations after investigation and enforcement actions. This may enable regulators to better understand the impact on violators themselves and the extent to which media reporting of enforcement action may have a demonstration effect on potential violators. Originality/value – The paper provides valuable empirical evidence of the influence of enforcement on compliance, which should be of interest to corporate regulators and those interested in regulation and corporate governance.

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