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Benford and the Internal Capital Market: A Useful Indicator of Managerial Engagement

Author

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  • El Mouaaouy Florian

    (Ludwig-Maximilians-Universität München,Munich, Bavaria, Germany)

  • Riepe Jan

    (Eberhard-Karls University Tübingen,Tübingen, Germany)

Abstract

We propose the application of digit analysis using the Benford law to indicate managerial engagement in the capital allocation process. First, we motivate the potential of the Benford digit analysis to identify allocation outcomes that are shaped by human engagement instead of fixed decision rules. Second, we provide a case study to illustrate how the Benford digit analysis can be used to detect allocations affected by managerial interventions. We are unaware of any study applying the Benford test to internal capital markets, while this approach appears very useful in this context. It is commonly used in the auditing, financial accounting, and fraud detection literature.

Suggested Citation

  • El Mouaaouy Florian & Riepe Jan, 2018. "Benford and the Internal Capital Market: A Useful Indicator of Managerial Engagement," German Economic Review, De Gruyter, vol. 19(3), pages 309-329, August.
    • Handle: RePEc:bpj:germec:v:19:y:2018:i:3:p:309-329
    DOI: 10.1111/geer.12129
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    References listed on IDEAS

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