Reputational Loss Associated with Regulatory Sanctions in Scandinavia

Abstract: The purpose of this thesis is to determine if there is reputational harm as a consequence to a regulatory sanction. The focus of the thesis is the Scandinavian countries after the global financial crisis. To confirm if there is reputational losses associated with regulatory violations, an event study of abnormal returns was employed. The regulator, as well as the company in violation of regulation, has a need to understand the total financial loss following a regulatory enforcement action. The total loss for a publicly listed entity is twofold, one part being the administrative penalty given by the regulator, and the other being the penalty posed on the share price by the market reacting to the bad news of a regulatory violation. In Scandinavia the legal penalty constitutes of, on average, one eighth of the total financial loss which consequently imply reputational losses following the affirmation of corporate wrongdoings in Scandinavia.