The effect of deferred and non-prosecution agreements on corporate governance: Evidence from 1993-2013

Abstract

Non-And Deferred Prosecution Agreements (N/DPAs) are controversial because prosecutors, not judges or the legislature, are changing the governance of leading public corporations and entire industries. To analyze N/DPAs' corporate governance implications and provide policy makers with guidance, we code all publicly available N/DPAs (N=271) from 1993 to 2013, identifying 215 governance categories and subcategories. We find evidence that the execution of N/DPAs is associated with significant corporate governance changes. The study categorizes mandated corporate governance changes for entities that executed an N/DPA as follows: (1) Business Changes, (2) Board Changes, (3) Senior Management, (4) Monitoring, (5) Cooperation, (6) Compliance Program, and (7) Waiver of Rights. We supplement the analysis of governance changes in these categories with a more in depth evaluation of the respective subcategories of governance changes. We also code and analyze preemptive remedial measures, designed by corporations to preempt the execution of an N/DPA or corporate criminal indictment. The article evaluates the implications of the empirical evidence for boards, management, and legal practitioners.