Financial Fraud and Inventor Productivity

83 Pages Posted: 22 Apr 2020 Last revised: 26 Jul 2022

See all articles by Po-Hsuan Hsu

Po-Hsuan Hsu

National Tsing Hua University - Department of Quantitative Finance

Feng Tian

Hong Kong Polytechnic University

Long Yi

Hong Kong Baptist University (HKBU) - Department of Finance and Decision Sciences

Date Written: July 25, 2022

Abstract

Given the profound effects of financial fraud on corporate operations and managerial behaviors, this paper investigates the relation between financial fraud and inventor productivity. We find that the occurrence of financial fraud is negatively related to inventors’ innovation outputs, both quantitatively and qualitatively. Moreover, further tests suggest that such a relation is more pronounced when financial information is more distorted, when more non-top-management employees are involved, when fraud is driven by top executives’ self-serving motivation, when shareholders care more about short-term performance, or when inventors have lower levels of trust in their respective firms. Our results hold when we implement an instrumental variable regression based on the SEC’s past enforcement activities. In conclusion, our evidence highlights the important role that financial fraud in human capital and intellectual property.

Keywords: Financial Fraud; Innovation; Managerial Myopia; Trust; Corporate Culture

JEL Classification: G30; M40; M41; M43; O31

Suggested Citation

Hsu, Po-Hsuan and Tian, Feng and Yi, Long, Financial Fraud and Inventor Productivity (July 25, 2022). Available at SSRN: https://ssrn.com/abstract=3562829 or http://dx.doi.org/10.2139/ssrn.3562829

Po-Hsuan Hsu (Contact Author)

National Tsing Hua University - Department of Quantitative Finance ( email )

101, Section 2, Kuang-Fu Road
Hsinchu, Taiwan 300
China

Feng Tian

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

Long Yi

Hong Kong Baptist University (HKBU) - Department of Finance and Decision Sciences ( email )

Hong Kong

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