Regional crime rates and corporate misreporting

espanolEl capital social influye en la propension de los gerentes a buscar rentas privadas. Para ampliar esta linea de la literatura, utilizamos las tasas de criminalidad a nivel de distrito en Londres como un indicador de la descomposicion extrema del capital social. Encontramos que las empresas con sede en los distritos con tasas de criminalidad mas altas tienen mas probabilidades de gestionar el resultado contable. Tambien encontramos que las empresas en areas con tasas de criminalidad mas altas tienen tasas de impuestos efectivas mas bajas, lo que demuestra una evasion fiscal agresiva. Nuestros hallazgos indican que el capital social es importante para la informacion financiera corporativa. EnglishPrior studies document that social capital influences managers’ propensity to seek private rents. We extend this line of literature by linking regional crime rates, an indicator of extreme breakdown of social capital, to corporate reporting behaviours such as earnings management and tax avoidance. Utilising borough-level crime rates in London, we show that firms headquartered in boroughs with higher crime rates are more likely to engage in earnings management. We also find that firms in such boroughs exhibit lower levels of effective tax rates, evidencing aggressive tax avoidance. Our findings suggest that social capital plays a significant role in shaping corporate reporting.