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Information Production, Misconduct Effort, and the Duration of Corporate Fraud

Author

Listed:
  • Jonathan Black
  • Maximiliano da Silva
  • Mattias Nilsson
  • Roberto Pinheiro

Abstract

We develop and test a model linking the duration of financial fraud to information produced by auditors and analysts and efforts by managers to conceal the fraud. Our empirical results suggest fraud termination is more likely in the quarter following the release of audited financial statements, especially when reports contain explanatory language, indicating auditors? observable signals reduce fraud duration. Analyst attention increases the likelihood of fraud termination, but the marginal effect beyond the first analyst is negative, possibly due to free riding and herding behavior impairing analysts? ability to illuminate misconduct. Finally, evidence suggests managerial concealment significantly increases fraud duration.

Suggested Citation

  • Jonathan Black & Maximiliano da Silva & Mattias Nilsson & Roberto Pinheiro, 2016. "Information Production, Misconduct Effort, and the Duration of Corporate Fraud," Working Papers (Old Series) 1613, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwp:1613
    DOI: 10.26509/frbc-wp-201613r
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    Cited by:

    1. Yung, Chris, 2019. "Entrepreneurial manipulation with staged financing," Journal of Banking & Finance, Elsevier, vol. 100(C), pages 273-282.

    More about this item

    Keywords

    Fraud duration; Information production; Fraud effort; Auditor reports; hazard models;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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