The Future of Financial Fraud

31 Pages Posted: 25 Jul 2020 Last revised: 17 Aug 2020

See all articles by Jonathan M. Karpoff

Jonathan M. Karpoff

University of Washington - Michael G. Foster School of Business; European Corporate Governance Institute (ECGI)

Date Written: July 9, 2020

Abstract

Is financial fraud becoming a bigger or smaller problem over time? Current empirical approaches to this question generate mixed inferences. As an alternative, I use two theoretical constructs that isolate several factors that motivate fraud, and use them to consider the impact of technological and wealth changes over time. Some changes, such as an increase in anonymity in some financial transactions, facilitate new fraud innovations and increase the possibility of fraud. The COVID-19 pandemic and resulting economic shutdown has fostered major disruptions in relative demands and organizational capital that also increase the likelihood of fraud over the next few years. Viewed over a longer time scale, however, the majority of technological and wealth changes seem likely to increase the use and effectiveness of reputational capital, third-party enforcement, and ethical motivations as fraud deterrents. I predict that, on net, these changes will drive a long-term decrease in the incidence of fraud.

Keywords: Financial misconduct, fraud, trust, reputation

JEL Classification: A13, G38, K40, Z10

Suggested Citation

Karpoff, Jonathan M., The Future of Financial Fraud (July 9, 2020). Journal of Corporate Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3642913 or http://dx.doi.org/10.2139/ssrn.3642913

Jonathan M. Karpoff (Contact Author)

University of Washington - Michael G. Foster School of Business ( email )

Box 353226
Seattle, WA 98195-3200
United States
206-685-4954 (Phone)
206-221-6856 (Fax)

European Corporate Governance Institute (ECGI) ( email )

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Belgium

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