Regional Crime Rates and Corporate Misreporting

Spanish Journal of Finance and Accounting, Forthcoming

47 Pages Posted: 13 Jun 2016 Last revised: 6 Feb 2019

See all articles by Hyungjin Cho

Hyungjin Cho

Universidad Carlos III de Madrid

Sera Choi

Seoul National University - College of Business Administration

Woo-Jong Lee

Seoul National University

Seunghee Yang

Seoul National University

Date Written: February 5, 2019

Abstract

Prior studies document that social capital influences managers’ propensity to seek private rents. We extend this line of literature by linking regional crime rates, an indicator of extreme breakdown of social capital, to corporate reporting behaviours such as earnings management and tax avoidance. Utilizing borough-level crime rates in London, we show that firms headquartered in boroughs with higher crime rates are more likely to engage in earnings management. We also find that firms in such boroughs exhibit lower levels of effective tax rates, evidencing aggressive tax avoidance. Our findings suggest that social capital plays a significant role in shaping corporate reporting.

Keywords: crime rates, social capital, financial reporting quality, tax avoidance

JEL Classification: A13, M41, H2

Suggested Citation

Cho, Hyungjin and Choi, Sera and Lee, Woo-Jong and Yang, Seunghee, Regional Crime Rates and Corporate Misreporting (February 5, 2019). Spanish Journal of Finance and Accounting, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2791512 or http://dx.doi.org/10.2139/ssrn.2791512

Hyungjin Cho

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Getafe, Madrid 28903
Spain
+34 91 624 9322 (Phone)

Sera Choi

Seoul National University - College of Business Administration ( email )

Seoul, 151-742
Korea, Republic of (South Korea)

Woo-Jong Lee (Contact Author)

Seoul National University ( email )

Gwanak-ro 1, Gwanak-gu
Seoul, 151-916
Korea, Republic of (South Korea)

Seunghee Yang

Seoul National University ( email )

Kwanak-gu
Seoul, 151-742
Korea, Republic of (South Korea)

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