Abstract

http://ssrn.com/abstract=1337909
 
 

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Corporate Fraud, Governance and Auditing


Giovanni Immordino


Università degli Studi di Salerno - Centre for Studies in Economics and Finance (CSEF)

Marco Pagano


University of Naples Federico II - Department of Economics and Statistics; Einaudi Institute for Economics and Finance (EIEF); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

February 4, 2009

EFA 2009 Bergen Meetings Paper

Abstract:     
We analyze corporate fraud in a model in which managers have superior information but are biased against liquidation, because of their private benefits from empire building. This may induce them to misreport information and even bribe auditors when liquidation would be value-increasing. To curb fraud, shareholders optimally choose auditing quality and the performance sensitivity of managerial pay, taking external corporate governance and auditing regulation into account. For given managerial pay, it is optimal to rely on auditing when external governance is in an intermediate range. When both auditing and incentive pay are used, worse external governance must be balanced by heavier reliance on both of those incentive mechanisms. In designing managerial pay, equity can improve managerial incentives while stock options worsen them.

Number of Pages in PDF File: 40

Keywords: accounting fraud, auditing, managerial compensation, corporate governance, regulation

JEL Classification: G28, K22, M42

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Date posted: February 5, 2009 ; Last revised: March 2, 2009

Suggested Citation

Immordino, Giovanni and Pagano, Marco, Corporate Fraud, Governance and Auditing (February 4, 2009). EFA 2009 Bergen Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1337909 or http://dx.doi.org/10.2139/ssrn.1337909

Contact Information

Giovanni Immordino
Università degli Studi di Salerno - Centre for Studies in Economics and Finance (CSEF) ( email )
84084 Fisciano, Salerno
Italy
Marco Pagano (Contact Author)
University of Naples Federico II - Department of Economics and Statistics ( email )
Via Cintia - Monte S. Angelo
Napoli, 80126
Italy
+39 081 675306 (Phone)
+39 081 7663540 (Fax)
Einaudi Institute for Economics and Finance (EIEF)
Via Sallustiana, 62
Rome, 00187
Italy
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
HOME PAGE: http:/www.ecgi.org
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