How Pervasive is Corporate Fraud?

44 Pages Posted: 24 Feb 2013 Last revised: 18 Feb 2021

See all articles by I. J. Alexander Dyck

I. J. Alexander Dyck

University of Toronto - Rotman School of Management

Adair Morse

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER)

Luigi Zingales

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: February 17, 2021

Abstract

We provide an estimate of the undetected share of corporate fraud. To identify the hidden part of the ‘iceberg,’ we exploit Arthur Andersen’s demise that triggered added scrutiny on AA’s former clients, thereby increasing the detection likelihood of preexisting frauds. Our evidence suggests that in normal times only one third of corporate frauds are detected. We estimate that on average 11% of large publicly-traded firms are committing securities fraud every year. Combining this figure with existing estimates of the costs of detected and undetected fraud, we estimate that corporate fraud destroys 1.7% of equity value each year, equal to $744bn in 2020.

Keywords: corporate fraud, governance, detection

JEL Classification: G34, K22, G38

Suggested Citation

Dyck, I.J. Alexander and Morse, Adair and Zingales, Luigi, How Pervasive is Corporate Fraud? (February 17, 2021). Rotman School of Management Working Paper No. 2222608, Available at SSRN: https://ssrn.com/abstract=2222608 or http://dx.doi.org/10.2139/ssrn.2222608

I.J. Alexander Dyck

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S 3E6
Canada
416-946-0819 (Phone)

Adair Morse (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Luigi Zingales

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-3196 (Phone)
773-834-2081 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
2,653
Abstract Views
15,155
rank
6,145
PlumX Metrics