The Local Spillover Effect of Corporate Accounting Misconduct: Evidence from City Crime Rates

48 Pages Posted: 23 Aug 2018 Last revised: 11 Apr 2019

See all articles by Eric Holzman

Eric Holzman

The Ohio State University - Department of Accounting & Management Information Systems

Brian P. Miller

Indiana University - Kelley School of Business - Department of Accounting

Brian Williams

Indiana University - Kelley School of Business - Department of Accounting

Date Written: April 9, 2019

Abstract

This study documents a spillover effect of accounting fraud by showing that after the revelation of accounting misconduct there is an increase in financially motivated neighborhood crime (robberies, thefts, etc.) in the cities where these misconduct firms are located. We find that more visible accounting frauds (e.g., greater media attention and larger stock price declines) are more strongly associated with a future increase in city crime. Our findings are consistent with the general strain theory put forth by Agnew (1992), where individuals facing strain are more likely to commit crime. In our setting, we predict that adverse shocks stemming from the fraud, strains local communities leading to the increase in crime rates. Consistent with our predictions we find that the association between fraud revelation and increased future crime is strongest when local city-wide unemployment increases, where local job markets are shallower, and where local income inequality is high.

Keywords: Accounting Misconduct; AAER; Crime; Social Norms

JEL Classification: M41; G30; D91

Suggested Citation

Holzman, Eric and Miller, Brian P. and Williams, Brian, The Local Spillover Effect of Corporate Accounting Misconduct: Evidence from City Crime Rates (April 9, 2019). Kelley School of Business Research Paper No. 18-72. Available at SSRN: https://ssrn.com/abstract=3230019 or http://dx.doi.org/10.2139/ssrn.3230019

Eric Holzman (Contact Author)

The Ohio State University - Department of Accounting & Management Information Systems ( email )

2100 Neil Avenue
Columbus, OH 43210
United States

Brian P. Miller

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States
812-855-2606 (Phone)

Brian Williams

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

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