Punishing Financial Crimes: The Impact of Prison Sentences on Defendants and Their Colleagues

Financial crimes are costly to society but less severely punished than other nonviolent crimes. We investigate whether prison sentences reduce financial crimes. Using random assignment of judges in Finland to identify causal impacts, we find a prison sentence reduces defendant reoffending by 42.9 percentage points three years postsentencing. Given prior evidence of financial misconduct “contagion,” we also explore spillovers on colleagues. A prison sentence reduces the likelihood that a financial crime defendant’s colleagues commit crimes by 27 percentage points, suggesting broader deterrent effects of harsher punishments, but only for fraud cases. Last, we show financial crimes are not victimless crimes. (JEL K14, K22, K41, K42)