Product Similarity, Benchmarking, and Corporate Fraud

59 Pages Posted: 17 Jun 2019 Last revised: 6 Dec 2022

See all articles by Audra L. Boone

Audra L. Boone

Texas Christian University - M.J. Neeley School of Business; European Corporate Governance Institute (ECGI)

William Grieser

Texas Christian University

Rachel Li

Securities and Exchange Commission (SEC)

Parth Venkat

University of Alabama - Department of Economics, Finance and Legal Studies

Date Written: August 19, 2024

Abstract

We document that firms with greater product similarity to their peers exhibit a lower rate of financial fraud. Our evidence suggests that peer similarity enhances the information environment, which improves benchmarking and increases the likelihood of detection. Consequently, ex-ante managers are less likely to commit fraud. The relation between product similarity and fraud remains after controlling for alternative mechanisms including incentive compensation structures, competition, and internal and external governance characteristics. Overall, our findings indicate that peer similarity increases the marginal costs of fraud and shifts managers’ trade-offs in their decision to commit fraud.

Keywords: Corporate Fraud, Product Market Similarity, Product Similarity, Benchmarking, Corporate Governance

JEL Classification: G30, M41, G34

Suggested Citation

Boone, Audra and Grieser, William and Li, Rachel and Venkat, Parth, Product Similarity, Benchmarking, and Corporate Fraud (August 19, 2024). Sixth Annual Conference on Financial Market Regulation, Available at SSRN: https://ssrn.com/abstract=3070375 or http://dx.doi.org/10.2139/ssrn.3070375

Audra Boone

Texas Christian University - M.J. Neeley School of Business ( email )

Fort Worth, TX 76129
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

William Grieser

Texas Christian University ( email )

Fort Worth, TX 76129
United States

Rachel Li

Securities and Exchange Commission (SEC) ( email )

100 F St NE
Washington, DC 20549-1105
United States

Parth Venkat (Contact Author)

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

P.O. Box 870244
Tuscaloosa, AL 35487
United States

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