About one-quarter of perpetrators of financial reporting misconduct experience a net benefit, even after getting caught, according to a new Columbia Business School study examining the most serious cases of misreporting.

Nearly 26 percent of perpetrators experienced a net benefit, according to the research, conducted by Columbia Business School professors Shiva Rajgopal and Dan Amiram and researcher Serene Huang, which also found that the risk of detection is only 25 percent.

The study focused on major episodes of financial misconduct since 2003 and compared the costs and benefits of getting caught by hand-collecting data on perpetrators. Benefits include salary bonuses and stock and options gains, while costs include disgorgements, fines, and foregone earnings for perpetrators who lose their jobs. For perpetrators who were caught, researchers compared these costs to other offsetting income, such as severance pay.

The study, “Does Financial Reporting Misconduct Pay Off Even When Discovered?,” covers 237 cases of financial conduct from 2003 to 2015, from three specific datasets: U.S. Securities and Exchange Commission enforcement actions, securities class-action lawsuits, and financial restatement announcements that triggered negative stock market reactions.

“With more than half of perpetrators potentially benefiting, the numbers speak for themselves. Top senior managers of large companies will certainly see that the odds are in their favor even if they get caught cooking the books,” said Shiva Rajgopal, Kester and Byrnes Professor of Accounting and Auditing at Columbia Business School, in a statement. “Unless regulators improve their processes, research shows that financial reporting misconduct will continue to be an attractive option.”

Other key findings from the study include:

• 39 percent of perpetrators were fired upon revelation of misconduct; of those fired, 64 percent went on to get a new job, usually in small private companies.
• 25.9 percent of the perpetrators experience an overall gain even after getting caught: 2.7 percent from the SEC sample, 24.1 percent from the lawsuits sample, and 32.1 percent from the restatements sample. These benefits were usually in the form of lower forgone earnings and lower unrealized losses on their stockholdings. Of this group, only 7 percent were fired regarding their misconduct.
• Analysis shows that the average cost of getting caught amounts to $26.7 million, with the notable hits coming via stockholding and forgone earnings “, suggesting that the stock market and the labor market are generally effective at punishing perpetrators.

The study is available here.