ABSTRACT: The corporate scandals of 2002 led to criminal indictments of numerous executives and other employees. Legislators have increased the severity of penalties for white‐collar crimes in an effort to deter such crimes; however, much previous academic research has suggested that increasing the severity of penalties does not deter criminal activity.
This study asks subjects to rate which factors would most affect their decision to trade or not trade based on insider information. The results indicate that severity of penalties is the most important factor that subjects consider when faced with the decision to use insider information. Subjects rated the case‐specific variables of severity of penalties, likelihood of getting caught, and expected gain as significantly more important than the subject‐specific variables of guilt, social stigma, cynicism, and fairness of the insider‐trading laws. The differentiation between case‐ and subject‐specific variables is used to help explain some of the varying results of past studies. Additionally, differences in attitudes pre‐ and post‐Enron and differences between genders are also found.
