Empirical Legal Studies

Lay Understandings of Civil Settlements

When it comes to resolving formal civil disputes, popular imagination, partly fueled by the media and entertainment industry, is dominated by "courtroom drama" and jury trials. Empirical work over the decades, however, paints quite a different picture, and one dominated by the "disappearing trial." Thus, as Jennifer Robbennolt (Illinois) et al. make clear in Settlement Schemas: How Laypeople Understand Civil Settlement, "for all the attention paid to the real and imagined drama of the courtroom, these depictions overlook the reality of how many disputes are resolved: through any means but trial."

In the service of seeking a better understanding of how the public understands civil settlements, the authors surveyed a representative sample of more than 1,000 U.S. adults. Key findings include that while the public conveyed a widespread general understanding about civil settlements, evidence of misconceptions about the details, including the role of a jury and settlement scope, also emerged. The paper's abstract follows.

"What does the public think it means to ‘settle’ a civil case? Most legal disputes in the United States end in an agreement to settle, but little is known about what laypeople think about settlement. To fill this gap, we took a direct approach: we asked a nationally representative sample of U.S. adults – more than one thousand of them – basic questions about settlement. We found widespread understanding about the essential nature and frequency of settlement, but persistent, though not universal, misconceptions about the details, including the role of a jury and settlement scope. Because settlement is such a pervasive part of the U.S. legal system, the system’s legitimacy turns in part on how the public understands and views civil settlement. The survey reported here provides a foundational study of the understandings and framework – the schemas – that the public bring to settlement."

Sentencing as a Product of Plea Agreements

When it comes to explaining criminal sentences, conventional wisdom emphasizes either judges or, given that criminal convictions largely flow from negotiated plea agreements, prosecutors. A closer look, however, reveals far more nuance and complexity and a dynamic process involving multiple parties concurrently rather than a static event dominated by one actor.

In a recent "closer look," Jeffrey Bellin (William & Mary) & Jenia Turner (SMU) explore 77 plea bargains in the first half of 2019. Noting that comprehensive empirical work on judicial responses to negotiated plea deals is sparse, In Sentencing in an Era of Plea Bargains makes a few helpful contributions. First, the authors' deep dive into 77 pleas bargains, though descriptive, revels some initial, general contours of these agreements. Notably, while judges ultimately approved all of the 77 plea bargains in the paper's sample, judges departed from the negotiated sentencing recommendation in about one-third of the cases. Also notable is that in virtually all instances where the judge departed from the negotiated sentence, she did so in a direction that favored greater leniency. Second, in separate analyses the authors examine 31 plea agreements that elicited judicial rejections. Somewhat perplexingly, judges rejected most plea agreements (74%) because they felt the recommended sentence was too lenient.

Obviously, descriptive studies that lack statistical power are limited in important ways. At the same time, however, such studies can help by pointing future researchers in potential helpful directions. The paper's (excerpted) abstract follows.

“The literature offers inconsistent answers to a question that is foundational to criminal law: Who imposes sentences? Traditional narratives place sentencing responsibility in the hands of the judge. Yet, in a country where 95 percent of criminal convictions come from guilty pleas (not trials), modern American scholars center prosecutors – who control plea terms – as the decider of punishment. This Article highlights and seeks to resolve the tension between these conflicting narratives by charting the pathways by which sentences are determined in a system dominated by plea bargains.

After reviewing the empirical literature on sentence variation, state and federal plea-bargaining rules and doctrines, and conducting some empirical analysis of our own, we conclude that neither of the competing narratives is correct. Sentencing in the United States has become a dynamic process with substantial contributions from multiple actors, not a static event controlled by any single actor.”

How Summary Judgment Changes Vary Across Subject Areas

The Supreme Court upended summary judgment doctrine with a trilogy of cases in 1986. At the time--and largely persisting into current prevailing wisdom--it was assumed that the 1986 changes made summary judgment comparatively more available and, thus, of greater benefit to defendants. While empirical evidence remains somewhat scant, emerging findings paint a far more complex and nuanced picture.

A recent contribution to this research literature comes from Jonathan Nash (Emory) and Daniel Sokol (USC). In The Summary Judgment Revolution that Wasn't, the authors lever six separate (though related) datasets that draw from federal court decisions in three discrete areas (antitrust, civil rights, and securities regulation) and exploit the 1986 trilogy with pre- and post-intervention comparisons. At bottom, the paper finds "no evidence of the trilogy influencing summary judgment decision making in securities regulation, and at best mixed evidence of such an effect in civil rights cases. In contrast, we find that the trilogy did have a strong statistically significant effect on decision making in antitrust cases, at both the district court and court of appeals levels." The abstract follows.

"The U.S. Supreme Court decided a trilogy of cases on summary judgment in 1986. Questions remain as to how much effect these cases have had on judicial decision making in terms of wins and losses for plaintiffs. Shifts in wins and losses and what cases get to decisions on the merits impact access to justice. We assemble novel datasets to examine this question empirically in three areas of law that are more likely to respond to shifts in the standard for summary judgment: antitrust, securities regulation, and civil rights. We find that the Supreme Court’s decisions had a statistically significant effect in antitrust, an ambiguous effect in civil rights cases, and no effect in securities regulation. We also find that, in the trilogy’s wake, antitrust appellate cases were far more likely to cite trilogy cases—and in particular the one trilogy case that was an antitrust case—than appellate cases in the other areas. This suggests that the lone trilogy case that arose in antitrust had an effect on decision making in that field, but that the trilogy had a limited effect across other substantive areas. This finding differs from Twombly and Iqbal where an antitrust decision ultimately reshaped the entire body of law around motions to dismiss."

Experimental Judicial Decisionmaking Studies & External Validity

For experimental judicial decisionmaking studies, the "gold-standard" research design includes using actual judges as participants. My Cornell colleague (and good friend) Jeff Rachlinski is a leading scholar in this space. For an array of reasons (including practical reasons), too much of the experimental research in this field is hampered by researchers' use of students (including law students) as the experimental participants. To the extant that researchers seek to generalize results from judicial decisionmaking studies to the "universe of judges," conventional  wisdom suggests that the use of students in these experiments raises important external validity questions.

Of course, such (and most) "conventional wisdoms" rest on empirical assumptions. And in a recent paper, Can Law Students Replace Judges in Experiments of Judicial-Making?, Holger Spamann (Harvard) and Lars Klohn (Humboldt) submit this question to an experiment. The answer to the question they pose in their paper's title?: "unfortunately, no." The paper's abstract follows.

"Experimental research on judicial decision-making is hampered by the difficulty of recruiting judges as experimental participants. Can students be used in judges’ stead? Unfortunately, no. We ran the same high-context 2×2 factorial experiment of judicial decision-making focused on legal reasoning with 31 U.S. federal judges and 91 elite U.S. law students. We obtained diametrically opposed results. Judges’ decisions were strongly associated with one factor (sympathy, i.e., bias) but not the other (law). For students, it was the other way around. Equality between the two groups is strongly rejected. Equality of document-view patterns—a proxy for thought processes—and written reasons is also strongly rejected."

Specific Performance, Expectations, and Elon Musk

For one brief moment in time in 2022, to some it looked as though a Delaware judge was poised to order Elon Musk to purchase Twitter, over his objections, due to a contract breach. Had that happened, as Tess Wilkinson-Ryan (Penn) et al. note in Expecting Specific Performance, it would have been "the highest-profile specific performance order in living memory."

The incident helped prompt Wilkinson-Ryan and colleagues to explore intuitions on specific performance through a series of mixed-method experiments. And what they find, on balance, are "fragile" intuitions. Levering a mix of survey and experimental data, the authors find that "ordinary people think that courts will give them exactly what they bargained for after breach of contract; in other words, specific performance is the expected contractual remedy." They go on to argue that "the default expectation of equitable relief is a widespread but malleable intuition—and that even a fragile legal intuition has practical consequences, individually and systemically." Indeed, updating subjects with the prospect of money damages for a contract breach loosens initial default expectations for specific performance. The paper's abstract follows.

“Using a series of surveys and experiments, we find that ordinary people think that courts will give them exactly what they bargained for after breach of contract; in other words, specific performance is the expected contractual remedy. This expectation is widespread even for the diverse array of deals where the legal remedy is traditionally limited to money damages. But for a significant fraction of people, the focus on equity seems to be a naïve belief that is open to updating. In the studies reported here, individuals were less likely to anticipate specific performance when they were briefly introduced to the possibility that courts sometimes award damages in contract disputes.

We argue that the default expectation of equitable relief is a widespread but malleable intuition—and that even a fragile legal intuition has practical consequences, individually and systemically. In a follow-up experiment, we show that subjects are more interested in the prospect of efficient breach when they know that money damages are a possible remedy. This finding suggests that the mismatch between what people assume the law will do (specific performance) and what it actually does (money damages) sometimes encourages performance. We consider the potential for exploitation of this tendency. Finally, we offer some suggestions about how law and psychologists should elicit folk beliefs about legal rules and remedies."

Criminal Records & Accuracy

Given the outsized implications for individuals, to note that criminal record keeping requires accuracy is to note merely the obvious. This is especially true in the employment context where "94% of employers conduct background checks" on job applicants. Growing employer demand for background checks has, in turn, fueled a dramatic increase in private sector service providers in this space. While access to and uses of criminal records have expanded, concerns persist about "serious data quality problems" in various criminal justice databases.

To explore this issue, in a recent paper, The Problem With Criminal Records, Sarah Lageson (Rutgers--crim. just.) & Robert Stewart (Maryland--crim. just.) compare criminal record reports for 101 New Jersey participants, all of whom had at least one criminal change in their history, across three sources: (1) the official state record; (2) a consumer reporting agency; and (3) an open source, public records data aggregator. The researchers then asked each of the 101 participants to review and audit the information retrieved from the three sources.

As the figure above visually implies, what the researchers found includes errors, and lots of them. Among the 2,406 individual charges reported by the three separate sources, only 8.3% of the participants' criminal charges (200/2,406) were accurately reported by all three sources. Moreover, 60% and 50% of participants had at least one false positive error on their regulated and unregulated background checks, and nearly all (90% and 92% of participants, respectively) had at least one false negative error. As this study is limited to individuals with criminal histories, it remains unclear whether errors also implicate those with no criminal history. The paper's abstract follows.

"Criminal records are routinely used by employers and other institutional decision-makers, who rely on their presumed fidelity, to evaluate applicants. We analyze criminal records for a sample of 101 people, comparing official state reports, two sources of private sector background checks (one regulated and one unregulated), and qualitative interviews. Based on our analysis, private sector background checks are laden with false positive and false negative errors: 60% and 50% of participants had at least one false positive error on their regulated and unregulated background checks, and nearly all (90% and 92% of participants, respectively) had at least one false negative error. We define specific problems with private sector criminal records: mismatched data that create false negatives, missing case dispositions that create incomplete and misleading criminal records, and incorrect data that create false positives. The prevalence of error in private sector background checks limits access to social opportunities ranging from employment, education, and housing."

Modeling Rare Events--SCOTUS Clerkships

Of the approximate 36,000 law school students who graduate each year, only 36 or so end up securing a SCOTUS clerkship. While a handful of biographical and anecdotal accounts exist, very few systematic data exist on the "1-in-1,000" clerkship lottery.

A recent paper by Tracey George (Vanderbilt), Albert Yoon (Toronto), and Mitu Gulati (Virginia), Some Are More Equal Than Others: U.S. Supreme Court Clerkship, digs into 40 years worth of data and provides rich granularity about this statistical rare event. In the main, while some unexpected twists emerge, what the authors find generally comports with perceived wisdoms. For example, a disproportionate number of clerks emerge from five elite law schools. One interesting change, however, is that while a SCOTUS clerkship once led "primarily to government and universities [law faculties]," former clerks now increasingly land at "law firms and corporations." An excerpted abstract follows.

"... Yet, we lack a clear story about who wins this clerkship lottery. This Essay seeks to provide that story. Our analysis relies on new datasets of all Court clerks who served between 1980 and 2020, including the details of their path to the Court and their road after. We amend and expand on theories of success in this important labor market. All clerks are highly qualified, yet the same is true for many not chosen. We find that educational pedigree, as opposed to academic performance or any other qualification, often distinguishes the winners from the also-rans. The Court clerkship selection process, like other elite labor markets, proves to be a blend of status and merit where status often prevails. Our analysis does not end there, however. We go on to look at where this forty-year cohort is currently working and confirm that once attained, a Court clerkship does lead to a bounty of opportunities including a return to the Court as a justice. Thus, the Court clerkship lottery is an important labor market not only to lawyers but also to society writ large. In the elite legal labor market, some people are, in fact, more equal than others."

More Evidence of a Racialized Death Penalty

Notably, race does not emerge as a central concern in the Court’s Furman decision, now more than fifty years old. In the decades since Furman, however, empirical evidence continues to mount documenting that "racial discrimination infects the administration of the death penalty." A recent paper by Jeffrey Fagan et al. (Columbia), Getting to Death: Race and the Paths of Capital Cases after Furman, represents a recent and important contribution to this literature. Researchers visited each judicial circuit in Georgia to record the details of every murder case that entered the courts from 1994–2005. Analyses of the 1,317 death-eligible murders suggest that “race continues to matter, and that the statutory aggravators that distinguish death cases from other killings are themselves racialized.” A more detailed description of the paper's core findings appears in the Abstract (below).

“Decades of research on the administration of the death penalty have recognized the persistent arbitrariness in its implementation and the racial inequality in the selection of defendants and cases for capital punishment. This Article provides new insights into the combined effects of these two constitutional challenges. We show how these features of post-Furman capital punishment operate at each stage of adjudication, from charging death-eligible cases to plea negotiations to the selection of eligible cases for execution and ultimately to the execution itself, and how their effects combine to sustain the constitutional violations first identified 50 years ago in Furman. Analyzing a dataset of 2,328 first- degree murder convictions in Georgia from 1995–2004 that produced 1,317 death eligible cases, we show that two features of these cases combine to produce a small group of persons facing execution: victim race and gender, and a set of case-specific features that are often correlated with race. We also show that these features explain which cases progress from the initial stages of charging to a death sentence, and which are removed from death eligibility at each stage through plea negotiations. Consistent with decades of death penalty research, we also show the special focus of prosecution on cases where Black defendants murder white victims. The evidence in the Georgia records suggests a regime marred less by overbreadth in its statute than capriciousness and randomness in the decision to seek death and to seek it in a racially disparate manner. These two dimensions of capital case adjudication combine to sustain the twin failures that produce the fatal lottery that is the death penalty.”

Data on Whether Lawyers Add Value in IPOs

A common complaint is that lawyers provide the "grit" while the I-bankers provide the "grease" when it comes to commercial transactions, especially IPOs. Existing research on lawyers' transactional roles focuses on two alternative perspectives: The skilled advice and the passive execution hypotheses. To test these two competing hypotheses, in a recent paper, Do Lawyers Matter in Initial Public Offerings?, Bates (ASU--Finance) et al. draw from the Thomson Financial Securities Data Company (SDC) new issues database to identify U.S. IPOs over the period of 1986–2016. After filtering, the study's final sample includes data on 7,460 IPOs.

What the paper finds may--or may not--surprise. Specifically, the results imply that issuer law firm fixed effects account for an "economically significant portion of the variation in IPO outcomes, even after accounting for underwriter fixed effects." Specifically, the paper notes that "legal advisor fixed effects explain approximately 16.7% of the variation in IPO underpricing, which is about 70% of the variation attributable to underwriters documented in this and prior studies." Thus, if these effects are real, the paper evidences "the economic importance of legal advisors in the IPO process." The abstract follows.

"This study provides novel evidence that law firms representing issuers have a material impact on economic outcomes in the IPO market. Fixed effects for legal counsel explain a significant portion of the variation in IPO underpricing, comparable to underwriter fixed effects documented in prior studies. Issuer law firms also exhibit differential skill in moderating the likelihood of IPO-related litigation, and have an idiosyncratic influence on the structure of IPO disclosures. Accounting for endogenous selection, we document that law firms associated with lower rates of IPO-related litigation are also associated with less first-day underpricing and receive higher fees from their clients."

Judges' Financial Holdings, Case Outcomes, and Recusal

Fundamental to the notion of a fair trial and the rule of law is the principle that a judge shall apply the law impartially and free from the influence of any personal biases. When real or perceived conflicts of interest emerge, judges are expected to recuse themselves. Despite such an expectation, however, recent Wall Street Journal reporting revealed many cases where judges violated U.S. law and judicial ethics (28 U.S.C. Section 455) by overseeing cases that involve companies in which they or their family-owned stock. Unsurprisingly, several of the cases with conflicts have been appealed.

While Chief Justice John Roberts downplayed the significance of the Wall Street Journal reporting, characterizing the judges' failures to recuse as "isolated violations" and "unintentional oversights," empirical explorations of the potential influence of judges' financial holdings on case outcomes remain rare. To address this scholarly gap, a recent paper, Judge Financial Holdings and Case Outcomes: Evidence from Judge Financial Disclosures, examines whether there is a relation between the financial holdings of judges and the outcomes of the trials over which they preside.

To construct the judges' investment data set, Harit (Univ. Texas-Dallas—mgmt.) et al. extracted judge financial disclosure data from the Free Law Project website. Their sample includes 33,726 annual disclosure reports involving 3,250 federal judges from 2000 to 2020. The authors lever the random assignment of cases to judges and examine whether a judge's rulings are related to his or her stock ownership in one or more of the parties in the case. The paper finds robust evidence that judges rule more favorably and take longer when deciding over conflicted cases as compared to unconflicted ones. It also notes that investors are positively surprised by these outcomes. The abstract follows.

"This paper examines the association between a judge's financial holdings and the outcome of legal cases. Using novel data on financial disclosures of judges and the civil case information of public firms across district courts in the United States between 2000 and 2021, we document multiple instances in which judges fail to recuse themselves in cases where they hold common stock. We find robust evidence that judges rule more favorably and take longer when deciding over conflicted cases as compared to unconflicted ones. We also find that investors are positively surprised by these outcomes, as reflected by stock returns to trial outcomes. Collectively, our results provide the first large-scale evidence of the relation between judges' financial holdings and case outcomes."

Civilian Complaints Against Police & Prosecutor "Upcharging"

Citizens’ engagement with police serves as a valuable resource. One particular form of citizen engagement—civil complaints—can impose a serious cost to the targeted police officer as well as the police department. To try to reduce the potential negative effects of a citizen complaint against law enforcement agents, other criminal justice actors could act to re-frame the encounter such that the optics look unfavorably on the complaining citizen. Since a defendant cannot seek monetary damages in civil court unless his/her conviction or sentence was declared invalid, prosecutors may increase the number or the severity of charges that the defendant faces to propel the defendant toward accepting a plea deal, which would prevent the defendant from seeking further financial reparations. In a new paper, Do Civilian Complaints Against Police Get Punished?, DeAngelo (Claremont Colleges) et al. pursue this question empirically.

To do so, the authors examine arrest, complaint and charging data from Cook County (Illinois). The results indicate that a positive, causal link between citizen complaints and an increased number of total charges filed against a defendant exists. The paper also notes that a civilian complaint yields a larger plea discount, likely to induce a plea agreement. Notably, the main findings are entirely driven by charges filed directly by the prosecutor’s office rather than directly by the police. Given that prosecutors are likely filing charges after civilian complaints have been filed against law enforcement, it appears that prosecutor behavior is leading to upcharging in response to civilian complaints and not police decisions. An excerpted abstract follows.

“… This paper empirically investigates one way in which criminal justice institutions respond to civilian complaints. Namely, criminal prosecutors can upcharge a defendant who files a civil complaint against law enforcement. By upcharging, the prosecutor can increase the likelihood that a defendant will accept a plea deal, thus preventing the defendant from seeking monetary damages in civil court (Heck vs. Humphrey, 1994). Using data on citizen complaints and criminal charge outcomes from Cook County (Illinois), we find a strong causal link between a citizen filing a complaint and the total number of charges filed.”

The Empirics of Sobriety Checkpoint Stops

Motor vehicle crashes remain the leading cause of death for Americans under age 25, and many of these crashes involve substance use. To help reduce the volume of impaired drivers, many--but not all--states allow for sobriety checkpoints (SC). While historically checkpoint stops were used to enforce drunk driving laws, they are increasingly being used to deter and prosecute drugged drivers, especially in states where marijuana is legal.

Although “no-cause” traffic stops remain controversial, comparatively little data exist that helps inform related debates. While the SCOTUS permits such stops as a general matter, courts in eleven states have ruled that state constitutional provisions preclude sobriety checkpoints. And those states that discontinued sobriety checkpoints provide a critical source of data that a recent paper, Sobriety Checkpoint Law, Fatal Car Crashes and Arrests, exploits. In their paper, Lauren Jones (OSU—public affairs) and C. Blain Moran (OSU—public affairs) compare trends in event frequencies “across states that did and did not turn off their SC laws, net of confounding factors.” The paper finds, at bottom, that when states make sobriety checkpoints illegal, annual fatal crashes and DUI arrests increase. The paper also notes a racial effect relating to DUI and cannabis arrests. The abstract follows.

“Sobriety checkpoints have been used since the early 1980s to enforce laws prohibiting driving while intoxicated (DWI), and to deter DWI. However, their constitutionality has been questioned, as they allow police to stop drivers without cause. As a result, eleven states have banned their use. Using a two-way fixed effects event study analysis, we estimate the effect of rendering sobriety checkpoints illegal on state-level counts of fatal car crashes, and arrests for driving under the influence of drugs or alcohol (DUI), and drug possession. We find evidence that when states make sobriety checkpoints illegal, the number of annual fatal crashes increases by 17 percent. We also find evidence that rendering sobriety checkpoints illegal leads to a 25 percent increase in the number of annual DUI arrests in a state, suggesting that the deterrent effect of checkpoints is much stronger than their enforcement impacts. We also find suggestive evidence that eliminating sobriety checkpoints increases racial disparities in DUI and cannabis possession arrests, with larger impacts on arrests among Black residents.”

Theory's Role in ELS

A not infrequent, though diminishing, canard is that "too many" empirical legal studies papers are "atheoretical." While the claim itself is an empirical one (and one that I side-step), a larger, broader point endures. Specifically, the best of ELS is certainly informed by well-developed theory. In a recent paper, The Role of Theory in Empirical Legal Studies, Tonja Jacobi (Emory) makes this case in a brief and widely accessible paper. While perhaps targeted to "early career" ELS scholars and non-technical consumers of empirical research, the paper helpfully reminds all of theory's essential role in empirical legal studies. The paper's abstract follows.

"The growing field of empirical legal studies is not an alternative to theory: within every empirical inquiry is an implicit formal theoretical model. Further, good empirical tests should be inspired by substantive theories of the phenomena being analyzed. This essay explains how theory is built into all empirical testing and illustrates why empirical tests are best informed by well-developed theories. It uses examples of empirical studies of both US Supreme Court and Australian High Court oral argument to illustrate how these issues apply to the central issues at the intersection of empirical legal studies and constitutional law: the role of judicial ideology and strategy, and predicting judicial behavior. The essay explores common errors in both conducting and consuming empirical work, and presents some solutions, including both methodological fixes and how to draw on substantive expertise. It aims to help the non-technical reader understand when counterintuitive results should be queried and when, in contrast, resistance is more reflective of priors of the reader rather than potential weaknesses of the work. And it acts as a reminder to technical readers and empirical practitioners that theory is built into every empirical test, and so must be taken seriously."

Case Outcomes & Judge Financial Conflicts

To assist with insuring that "justice is blind," a presiding judge is expected to recuse from any case where he/she is financially conflicted with any of the litigating parties. Evidence that this expectation is not being consistently met was widely reported in 2020-2021. Indeed, the public controversy elicited a response from Chief Justice John Roberts. In his 2021 annual report on the federal judiciary, and in direct response to the controversy surrounding numerous federal judges, Chief Justice Roberts downplayed the controversy’s significance, characterizing the incidents as "isolated violations" and "unintentional oversights."

Notwithstanding Justice Roberts' characterizations, given the widespread implications posed by judges' failures to recuse when proper it is important to understand whether these recent episodes are one-time incidents or point to a larger, systemic problem. To address this question, in a recent paper, Judge Financial Holdings and Case Outcomes: Evidence from Judge Financial Disclosures, Tuhin Harit (Univ. Dallas--Mgmt.) et al. examine whether there is a relation between judges' disclosed financial holdings and the outcomes of the trials over which they presided.

Drawing from a sample that includes cases from 2000–2021, the paper finds that “stock ownership by judges significantly improves the chances of a litigant's winning a case.” In cases where the presiding judge is financially conflicted with either the defendant or plaintiff, “their chance of a favorable decision improves by 3.3% and 4.3%, respectively, after controlling for judge, industry, district, case file year, and firm characteristics.” An excerpted abstract follows.

"... Using novel data on financial disclosures of judges and the civil case information of public firms across district courts in the United States between 2000 and 2021, we document multiple instances in which judges fail to recuse themselves in cases where they hold common stock. We find robust evidence that judges rule more favorably and take longer when deciding over conflicted cases as compared to unconflicted ones. We also find that investors are positively surprised by these outcomes, as reflected by stock returns to trial outcomes. Collectively, our results provide the first large-scale evidence of the relation between judges' financial holdings and case outcomes.”

Dodd-Frank, Accounting Fraud, and Whistleblowing

Owing to several notable financial frauds involving whistleblowers, regulators took steps to strengthen whistleblowing provisions. One prominent example is the Dodd-Frank whistleblower program which provides financial rewards to whistleblowers who report financial fraud to the SEC. While regulators may believe that the Dodd-Frank whistleblower law helps deter accounting fraud, whistleblower tips can be frivolous and processessing such tips is not cost-less. Similar to all too many public policies, little empirically is known about the the Dodd-Frank whistleblower provision's efficacy.

In a recent paper, Did the Dodd-Frank Whistleblower Provision Deter Accounting Fraud?, Philip Berger (Chicago--Booth Business) & Heemin Lee (Baruch College) examine whether the Dodd-Frank whistleblower law has a causal effect on the deterrence of fraud and quantify the size of the deterrence effect. Exploiting a control group of firms previously exposed to state-level false claims statutes, the paper sets out to assess the "underlying (or ex ante) likelihood of accounting fraud decreases for firms subject to Dodd-Frank and not previously exposed to the risk of whistleblowing" via analogous state laws. At least as it relates to Dodd-Frank's whistleblowing component, the paper a finds a decrease in the probability of fraud attributable to whistleblower provisions. The abstract follows.

“We examine the deterrence effect of the Dodd-Frank whistleblower provision on accounting fraud. To facilitate causal inference, we use state False Claims Acts (FCAs), under which whistleblowing about accounting fraud at a firm invested in by a state's pension fund can result in monetary rewards from that state’s government. We divide our sample into firms exposed and not exposed to whistleblowing risk from a state FCA during the 2008 – 2010 period that preceded the 2011 SEC implementation of the Dodd-Frank whistleblowing provision. We hypothesize that firms already exposed to a state FCA whistleblower law are less affected by the Dodd-Frank whistleblower provision. Using the companies exposed to a state FCA as control firms in our Dodd-Frank tests, the remaining firms constitute the treatment sample. We find that exposure to Dodd-Frank reduces the likelihood of accounting fraud of treatment firms by 12% to 22% relative to control firms, but do not find that it affects audit fees.”