Corporate criminal liability is one of the most hotly contested areas of corporate governance. Enterprise-level liability can incentivize firms to detect and punish wrongdoers, a task they may be better equipped to perform than the government. On the other hand, some commentators argue that criminal liability should be imposed on individual lawbreaking executives rather than at the firm level. However, these debates elide a more fundamental question: how do we know that corporate criminal law matters at all? The formal doctrine of entity-level criminal law may bear little resemblance to the real-world prosecution of firms. Moreover, jurisdictions usually evolve concepts such as corporate criminal law slowly over time, rendering causal empirical claims tenuous.

In a new paper, forthcoming in the Journal of Law, Economics, and Organization, I argue that corporate criminal doctrine has an economically significant effect on firm value. This effect is influenced by the identity of the firm’s controlling shareholder and the level of monitoring to which the controller is subject. I exploit a landmark 2010 Indian Supreme Court decision establishing that corporate mens rea—i.e., a criminally culpable state of mind—exists if a person or group of people controlling that firm are shown to have criminal intent themselves. I hypothesize that this decision increased the prospect of corporate criminal liability for firms controlled by individuals and families. These companies had a clearly identifiable set of human controllers whose criminal intent could be ascribed to the firm after the Supreme Court’s decision.

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