Corporate crimes and innovation: Evidence from US financial firms

This study explores how corporate crimes affect innovation. We utilize a large sample of US financial firms between 2002 and 2019, along with violations and misconducts. We find that fraudulent financial firms innovate fewer new products, services, and patents. The negative association between corporate wrongdoings and inno-vation is more prominent for small and risky financial firms. Further analysis documents that misconduct gen-erates negative market reaction and damages firms' business expansions. These findings between corporate violations and operating performance are among the first empirical evidence for the finance industry where misconduct is widespread. Our results offer new insights into the real impact of unethical behaviors on financial firms' innovation performance. From a policy perspective, our study suggests how reputational damage can impede firms' technological progress.