Whistleblower rewards, false reports, and corporate fraud

How Pervasive Is Corporate Fraud?

We estimate what percentage of firms engage in fraud and the economic cost of fraud. Our estimates are based on detected frauds, and frauds that we infer are started but are not caught. To identify the ‘iceberg’ of undetected fraud we take advantage of an exogenous shock to the incentives for fraud detection: Arthur Andersen’s demise, which forces companies to change auditors. By assuming that ...

Rape and False Reports

Accounting Fraud and the Pricing of Corporate

We provide a method for modelling accounting distortions and their impact on the value of corporate liabilities. Our model is able to account for both small noise (estimate errors) and large mis-representations (deliberate fraud). Such a methodology is then applied to structural pricing models, in the spirit of Merton (1974). It turns out that accounting distortions may be a relevant factor in ...

Corporate Securities Fraud: an Economic Analysis

This paper analyzes a firm’s propensity to commit securities fraud and the real consequences of fraud. The theory shows that fraud has real economic cost, as investment distortions can arise from fraud-induced market misvaluation and management’s ability to influence the firm’s litigation risk through investment. The cost of inefficiency is borne by not only shareholders of fraudulent firms but...

Who Blows the Whistle on Corporate Fraud

What external control mechanisms are most effective in detecting corporate fraud? To address this question we study in depth all reported cases of corporate fraud in companies with more than 750 million dollars in assets between 1996 and 2004. We find that fraud detection does not rely on one single mechanism, but on a wide range of, often improbable, actors. Only 6% of the frauds are revealed ...