Abstract

http://ssrn.com/abstract=954368
 
 

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Corporate Lobbying and Fraud Detection


Frank Yu


China Europe International Business School

Xiaoyun Yu


Indiana University - Kelley School of Business - Department of Finance; China Academy of Financial Research (CAFR)

June 9, 2010

Journal of Financial and Quantitative Analysis (JFQA), Forthcoming

Abstract:     
This paper examines the relation between corporate lobbying and fraud detection. Using data on corporate lobbying expenses between 1998 and 2004, and a sample of large frauds detected during the same period, we find that firms’ lobbying activities make a significant difference in fraud detection: compared to non-lobbying firms, firms that lobby on average have a significantly lower hazard rate of being detected for fraud, evade fraud detection 117 days longer, and are 38% less likely to be detected by regulators. In addition, fraudulent firms on average spend 77% more on lobbying than non-fraudulent firms, and spend 29% more on lobbying during their fraudulent periods than during non-fraudulent periods. The delay in detection leads to a greater distortion in resource allocation during fraudulent periods. It also allows managers to sell more of their shares.

Number of Pages in PDF File: 60

Keywords: corporate lobbying, corporate fraud, corporate governance

JEL Classification: G3, K4

Accepted Paper Series


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Date posted: January 2, 2007 ; Last revised: May 14, 2014

Suggested Citation

Yu, Frank and Yu, Xiaoyun, Corporate Lobbying and Fraud Detection (June 9, 2010). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: http://ssrn.com/abstract=954368

Contact Information

Fang Yu (Contact Author)
China Europe International Business School ( email )
Shanghai 201206
China
Xiaoyun Yu
Indiana University - Kelley School of Business - Department of Finance ( email )
1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3521 (Phone)
812-855-5875 (Fax)

China Academy of Financial Research (CAFR)
1954 Huashan Road
Shanghai P.R.China, 200030
China

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