Corporate Culture and Fraud
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According to PwC's Global Economic Crime and Fraud survey (PwC 2018), almost half of global organizations have experienced fraud but many of the remaining organizations are likely to become victims of undetected fraud.Abstract:
Trust in public and private institutions has recently eroded. Multiple incidents of financial reporting scandals coupled with the financial crisis of 2007–2008, also called the “global financial crisis,” have resulted in a deterioration of investor trust in the institutions charged with protecting their wealth. This situation occurred in multiple layers and extended beyond the executive and boards of corporations to the regulation of gatekeeping professionals such as ratings agencies and auditors. These organizations not only gambled away investor funds but also undertook calculated moves to defraud their investors. Dealing with the risk of fraud today is becoming increasing complex and challenging. The emergence of digital data and global markets with complex legal requirements has only added to the intricate task of protecting against fraud. According to PwC’s Global Economic Crime and Fraud survey (PwC 2018), almost half of global organizations have experienced fraud but many of the remaining organizations are likely to become victims of undetected fraud. Fraud can manifest itself in several ways including consumer fraud, cybercrime, identity theft, and money laundering. For the purposes of this chapter, fraud refers to financial reporting fraud, which is the intentional manipulation of financial statements in order to mislead. This type of fraud cannot exist in a vacuum because it requires several agents in a firm to commit the fraud and many more to allow it to occur. As such, this chapter considers how an organization’s corporate culture affects the prevalence of financial reporting fraud.read more
Citations
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Journal ArticleDOI
Executives’ “Off-the-Job” Behavior, Corporate Culture, and Financial Reporting Risk
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Manipulative Games of Gifts by Corporate Executives
TL;DR: This article found that executives exploit a legal loophole to backdate their gifts, and that stock prices rise abnormally about 6% during the one-year period before the gift date and fall abnormally by about 5% during one year after the given gift date.
References
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Upper Echelons: The Organization as a Reflection of Its Top Managers
TL;DR: In this article, the authors synthesize these previously fragmented literatures around a more general "upper echelons perspective" and claim that organizational outcomes (strategic choices and performance levels) are partially predicted by managerial background characteristics.
Posted Content
An Empirical Analysis of the Relation between Board of Director Composition and Financial Statement Fraud
TL;DR: In this paper, the authors empirically tested the prediction that the inclusion of larger proportions of outside members on the board of directors significantly reduces the likelihood of financial statement fraud and found that no-fraud firms have boards with significantly higher percentages of outside board members than fraud firms.
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The Importance of Distinguishing Errors from Irregularities in Restatement Research: The Case of Restatements and CEO/CFO Turnover
TL;DR: In this article, a straightforward procedure for classifying restatements as either errors or irregularities is proposed, based on prior research, the reading of numerous restatement announcements, and guidance that boards receive from lawyers, auditors, and the SEC on how to respond to suspicions of deliberate misreporting.
Posted Content
Overconfidence and Early-life Experiences: The Impact of Managerial Traits on Corporate Financial Policies
TL;DR: This article found that managers who believe that their firm is undervalued view external financing as overpriced, especially equity, and use less external finance and, conditional on accessing risky capital, issue less equity than their peers.