Deterrence Effect and Opportunistic Corporate Fraud

54 Pages Posted: 12 Jan 2021 Last revised: 7 Mar 2022

See all articles by Botong Shang

Botong Shang

Singapore Management University - Lee Kong Chian School of Business

Date Written: February 26, 2022

Abstract

While theory suggests the existence of a regulatory deterrence effect on fraud, little is known about its quantitative significance. Using unique data, I estimate a model of strategic corporate fraud that quantifies firms' adjustments of fraud propensities in response to their expectations of regulators' information processing capacity. I find that 10 to 58 additional firms commit fraud each year with a one standard deviation change in the main forms of SEC regulatory intervention. I further exploit exogenous variation in regulatory attention from the 2005 option backdating scandal and find support for opportunistic fraud and the SEC's deterrence effect.

Keywords: deterrence, fraud, opportunistic behavior, detection, SEC, regulatory intervention, detection-controlled estimation, criminology

JEL Classification: G38, K42, M41, C30, C35, C57

Suggested Citation

Shang, Botong, Deterrence Effect and Opportunistic Corporate Fraud (February 26, 2022). Available at SSRN: https://ssrn.com/abstract=3710224 or http://dx.doi.org/10.2139/ssrn.3710224

Botong Shang (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

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