Betrayed Employees: The Impact of Financial Fraud on Inventor Productivity

83 Pages Posted: 22 Apr 2020 Last revised: 30 Sep 2023

See all articles by Po-Hsuan Hsu

Po-Hsuan Hsu

National Tsing Hua University - Department of Quantitative Finance; National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

Feng Tian

Hong Kong Polytechnic University

Long Yi

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

Date Written: November 17, 2022

Abstract

We collect detailed information of the investigations of U.S. Securities and Exchange Commission (SEC) to examine whether and how inventors are affected by financial fraud. We find that inventors’ innovation outputs, both quantitatively and qualitatively, are negatively related to the occurrence of financial fraud. 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 plays 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, Betrayed Employees: The Impact of Financial Fraud on Inventor Productivity (November 17, 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

National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER) ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

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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