Information Production, Misconduct Effort, and the Duration of Corporate Fraud

89 Pages Posted: 15 Jun 2016

See all articles by Jonathan Black

Jonathan Black

Purdue University - Department of Accounting

Mattias Nilsson

U.S. Securities and Exchange Commission

Roberto Pinheiro

Federal Reserve Banks - Federal Reserve Bank of Cleveland

Maximiliano Silva

Federal University of ABC

Date Written: June 1, 2016

Abstract

We develop and test a model linking the duration of financial fraud to information produced by auditors and analysts and efforts by managers to conceal the fraud. Our empirical results suggest fraud termination is more likely in the quarter following the release of audited financial statements, especially when reports contain explanatory language, indicating auditors’ observable signals reduce fraud duration. Analyst attention increases the likelihood of fraud termination, but the marginal effect beyond the first analyst is negative, possibly due to free riding and herding behavior impairing analysts’ ability to illuminate misconduct. Finally, evidence suggests managerial concealment significantly increases fraud duration.

Keywords: fraud duration, information production, fraud effort, auditor reports, hazard models

JEL Classification: G34, G38, K22, K42, L51, M41

Suggested Citation

Black, Jonathan and Nilsson, Mattias and Pinheiro, Roberto and Silva, Maximiliano, Information Production, Misconduct Effort, and the Duration of Corporate Fraud (June 1, 2016). FRB of Cleveland Working Paper No. 16-13. Available at SSRN: https://ssrn.com/abstract=2795237 or http://dx.doi.org/10.2139/ssrn.2795237

Jonathan Black

Purdue University - Department of Accounting ( email )

Krannert School of Management
West Lafayette, IN 47907-1310
United States

Mattias Nilsson

U.S. Securities and Exchange Commission ( email )

United States Securities and Exchange Commission
100 F Street NE
Washington, DC 20549
United States

Roberto Pinheiro (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States

Maximiliano Silva

Federal University of ABC ( email )

Rua Arcturus - Jardim Antares
Delta Building, 3rd Floor, Room 304
São Bernardo do Campo - SP, São Paulo 09606-070
Brazil
+55 11 2320-6314 (Phone)

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