The paper investigates the interaction between firms’ lobbying activities and public scrutiny and its impact on the firms’ fraud risk.
Prior studies on regulatory capture assume that lobbying firms are at least as likely, if not more likely, to commit fraud than non-lobbying firms. And the lower likelihood of enforcement actions may stem from preferential regulatory treatment. The paper posits that heightened public scrutiny directed at lobbying firms explains the lenient enforcement actions.
The paper documents that lobbying firms garner greater public scrutiny compared to non-lobbying firms. Further analysis finds that this heightened public scrutiny explains lobbying firms’ lower fraud risk.
There is the absence of a universally accepted measure for firms’ fraud risk, and the paper recognizes that our fraud risk measure may not capture all dimensions of fraud risk.
The paper suggests that the lower likelihood of enforcement actions faced by lobbying firms, previously attributed to regulatory capture, may stem from intense public monitoring.
The paper distinguishes between firms’ persistent, habitual lobbying activities and sporadic lobbying activities, as the underlying intentions of these two distinct forms of lobbying may differ.
