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Regulatory Sanctions and Reputational Damage in Financial Markets


We study the impact of the enforcement of financial regulation by the United Kingdom’s regulatory authorities on the market price of penalized firms. Existing studies rely on analyses of multiple events that may distort the measurement of reputational losses. In the United Kingdom, the entire enforcement process involves only one public announcement and is accompanied by complete information on legal penalties. We find that reputational losses are nearly nine times the size of fines and are associated with misconduct harming customers or investors but not third parties.

Corresponding author
* Armour,, Faculty of Law, University of Oxford; Mayer,, Saïd Business School, University of Oxford; and Polo (corresponding author),, Universitat Pompeu Fabra and Barcelona GSE.
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We are grateful to an anonymous referee and Jarrad Harford (the editor) for helpful comments on a previous version of this article. We gratefully acknowledge financial support from the Oxford University Centre for Corporate Reputation. We thank Cindy Alexander, Jennifer Arlen, Sara George, Ed Glaeser, Jeff Gordon, Jonathan Karpoff, Michael Knight, Meziane Lasfer, Jose Martinez, Alan Morrison, Richard Zeckhauser, and seminar and conference participants at the 2012 Annual Meeting of the American Finance Association in Chicago, the Bank for International Settlements, Bucerius Law School, the Financial Services Authority (in London and Wilton Park), Harvard University, Hebrew University of Jerusalem, Lancaster University, Oxford University, and Yale University.

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Journal of Financial and Quantitative Analysis
  • ISSN: 0022-1090
  • EISSN: 1756-6916
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