Corporate Securities Fraud: Insights from a New Empirical Framework

Abstract:     
Empirical analysis of corporate fraud faces a challenge because the commission of fraud is not directly observable. We observe only detected frauds. In this paper I introduce a new empirical model to address this partial observability of fraud. The new model generates new insights about not only the determinants of fraud commission and fraud detection, but also the interaction between the two latent processes. I also show that the empirical models used in the existing literature can lead to incorrect assessment of corporate or public policies designed to combat fraud.

Number of Pages in PDF File: 43

Keywords: securities fraud, fraud detection

JEL Classification: G30

Accepted Paper Series