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

44 Pages Posted: 23 Aug 2018

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: August 10, 2018

Abstract

This study examines whether the revelation of corporate accounting misconduct in a community is associated with an increase in neighborhood crime. We find that the revelation of an Accounting and Auditing Enforcement Release (AAER) in a city is associated with a subsequent increase in neighborhood-level financially motivated crime (robberies, thefts, etc.). We provide evidence that the increase in crime is incremental to the inclusion of a number of economic controls, the addition of local fixed effects, and a matched sample analysis.

Further, we find that the association between the revelation of an AAER and neighborhood financial crime is strongest in communities where:

1) the misconduct is more salient to the local citizenry (i.e., smaller locations) and,

2) in locations where there is greater income inequality.

Further, we find that the crime rate is approximately 3.3% higher in the year after the revelation of an AAER and remains at an elevated level for three to four years. In sum, our evidence suggests that accounting misconduct in corporations can spillover to crime in the local community.

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 (August 10, 2018). 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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