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Fraud Allegations and Government Contracting

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  • JONAS HEESE
  • GERARDO PÉREZ‐CAVAZOS

Abstract

This paper examines whether fraud allegations affect firms’ contracting with the government. Using a data set of whistleblower allegations brought under the False Claims Act against firms accused of defrauding the government, we find that federal agencies do not reduce the total dollar volume of contracts with accused firms; however, they substitute approximately 14% of the harder‐to‐monitor cost‐plus contracts for fixed‐price contracts. This effect is concentrated in the procurement of services and explained by contract and service substitution. Finally, we find that after the conclusion of the investigation, the government reduces the contract dollar volume by approximately 15% for cases that resulted in a settlement. Our findings indicate that contract‐design changes are used to mitigate uncertainty in suppliers’ reputation.

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  • Jonas Heese & Gerardo Pérez‐Cavazos, 2019. "Fraud Allegations and Government Contracting," Journal of Accounting Research, Wiley Blackwell, vol. 57(3), pages 675-719, June.
    • Handle: RePEc:bla:joares:v:57:y:2019:i:3:p:675-719
    DOI: 10.1111/1475-679X.12258
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    Cited by:

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    2. Aiyesha Dey & Jonas Heese & Gerardo Pérez‐Cavazos, 2021. "Cash‐for‐Information Whistleblower Programs: Effects on Whistleblowing and Consequences for Whistleblowers," Journal of Accounting Research, Wiley Blackwell, vol. 59(5), pages 1689-1740, December.
    3. Godsell, David & Huang, Kelly & Lao, Brent, 2023. "Managers’ rank & file employee coordination costs and real activities manipulation," Accounting, Organizations and Society, Elsevier, vol. 107(C).
    4. Heese, Jonas & Krishnan, Ranjani & Ramasubramanian, Hari, 2021. "The Department of Justice as a gatekeeper in whistleblower-initiated corporate fraud enforcement: Drivers and consequences," Journal of Accounting and Economics, Elsevier, vol. 71(1).
    5. Huang, Jun & Han, Feifei & Li, Yun, 2023. "Government as major customer: The effects of government procurement on corporate environmental, social, and governance performance," Finance Research Letters, Elsevier, vol. 54(C).
    6. Heese, Jonas & Pérez-Cavazos, Gerardo, 2021. "The effect of retaliation costs on employee whistleblowing," Journal of Accounting and Economics, Elsevier, vol. 71(2).
    7. Daniel Cohen & Bin Li & Ningzhong Li & Yun Lou, 2022. "Major government customers and loan contract terms," Review of Accounting Studies, Springer, vol. 27(1), pages 275-312, March.
    8. Glegg, Charmaine & Harris, Oneil & Ngo, Thanh & Susnjara, Jurica, 2021. "Having the government as a client: Does this reduce earnings management of the firm?," Journal of Government and Economics, Elsevier, vol. 4(C).
    9. Brogaard, Jonathan & Gerasimova, Nataliya & Rohrer, Maximilian, 2024. "The effect of female leadership on contracting from Capitol Hill to Main Street," Journal of Financial Economics, Elsevier, vol. 155(C).
    10. Huai Zhang & Jin Zhang, 2023. "Political corruption and accounting choices," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 50(3-4), pages 443-481, March.

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