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The future of financial fraud

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  • Karpoff, Jonathan M.

Abstract

Is financial fraud becoming a bigger or smaller problem over time? Current empirical approaches to this question generate mixed inferences. As an alternative, I use two theoretical constructs that isolate several factors that motivate fraud, and use them to consider the impact of technological and wealth changes over time. Some changes, such as an increase in anonymity in some financial transactions, facilitate new fraud innovations and increase the possibility of fraud. The COVID-19 pandemic and resulting economic shutdown has fostered major disruptions in relative demands and organizational capital that also increase the likelihood of fraud over the next few years. Viewed over a longer time scale, however, the majority of technological and wealth changes seem likely to increase the use and effectiveness of reputational capital, third-party enforcement, and ethical motivations as fraud deterrents. I predict that, on net, these changes will drive a long-term decrease in the incidence of fraud.

Suggested Citation

  • Karpoff, Jonathan M., 2021. "The future of financial fraud," Journal of Corporate Finance, Elsevier, vol. 66(C).
    • Handle: RePEc:eee:corfin:v:66:y:2021:i:c:s0929119920301383
    DOI: 10.1016/j.jcorpfin.2020.101694
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    2. Bashir Ahmad & Maria Ciupac-Ulici & Daniela-Georgeta Beju, 2021. "Economic and Non-Economic Variables Affecting Fraud in European Countries," Risks, MDPI, vol. 9(6), pages 1-17, June.
    3. Zaman, Rashid, 2024. "When corporate culture matters: The case of stakeholder violations," The British Accounting Review, Elsevier, vol. 56(1).
    4. Hamed Taherdoost, 2021. "A Review on Risk Management in Information Systems: Risk Policy, Control and Fraud Detection," Post-Print hal-03741848, HAL.
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    6. Yunchuan Sun & Xiaoping Zeng & Ying Xu & Hong Yue & Xipu Yu, 2024. "An intelligent detecting model for financial frauds in Chinese A‐share market," Economics and Politics, Wiley Blackwell, vol. 36(2), pages 1110-1136, July.
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    8. Wang, Yang & Ashton, John K. & Jaafar, Aziz, 2023. "Financial statement fraud, recidivism and punishment," Emerging Markets Review, Elsevier, vol. 56(C).
    9. Mostafa Saidur Rahim Khan & Yoshihiko Kadoya, 2023. "Who Became Victims of Financial Frauds during the COVID-19 Pandemic in Japan?," Sustainability, MDPI, vol. 15(4), pages 1-17, February.
    10. Hartmann, Andre J. & Gangl, Katharina & Kasper, Matthias & Kirchler, Erich & Kocher, Martin G. & Mueller, Martin & Sonntag, Axel, 2022. "The economic crisis during the COVID-19 pandemic has a negative effect on tax compliance: Results from a scenario study in Austria," Journal of Economic Psychology, Elsevier, vol. 93(C).
    11. Bernales, Alejandro & Beuermann, Diether W. & Cumming, Douglas & Olid, Christian, 2023. "Blue-Collar Crime and Finance," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 83(C).
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    More about this item

    Keywords

    Financial misconduct; Fraud; Trust; Reputation;
    All these keywords.

    JEL classification:

    • A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General
    • Z10 - Other Special Topics - - Cultural Economics - - - General

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