Regional Crime Rates and Corporate Reporting

Social norms or social capital influences corporate managers’ propensity to seek private rents, thereby being associated with the quality of corporatereporting. This paper provides empirical evidence that regional crime, an extreme breakdown of social capital, adversely affects corporate reporting behavior. Utilizing borough-level crime rates in London, we reportthat firms headquartered in a borough with higher crime rates are more likely to engage in earnings management. We also document that firms in such boroughs tend to exhibit higher levels of tax avoidance. Our findings confirm that social capital indeed plays a significant role in corporate reporting.