Externalities of Financial Statement Fraud on the Incoming Accounting Labor Force

108 Pages Posted: 27 Jul 2023

See all articles by Robert R. Carnes

Robert R. Carnes

University of Florida

Dane M. Christensen

University of Oregon

Paul E. Madsen

University of Florida

Date Written: July 24, 2023


Financial statement fraud generates many negative effects, including reducing people’s willingness to participate in the stock market. If it also stigmatizes accounting, it may similarly adversely affect the quantity and quality of workers willing to become accountants, thereby potentially creating negative effects for years to come. We examine the impact of fraud on the labor force entering the accounting profession, which is a key input into the production of accounting information (i.e., the output). Using data describing millions of college students across the U.S., we find incoming students are actually more likely to major in accounting when local frauds occur during their formative years. These students are also more likely to have attributes desired by the accounting profession (e.g., high academic aptitude) and are more likely to subsequently serve in public accounting and become CPAs. In the context of other fields (i.e., all college majors), we find that fraud similarly spurs interest in other business disciplines, but not in majors outside of business schools. Those attracted to other business disciplines, however, generally possess different traits. Specifically, students entering accounting are distinctively more likely to exhibit values espoused by the accounting profession, including a predisposition to public service and less commercial orientation. Thus, non-pecuniary motives appear to uniquely drive accounting student enrollment following fraud. Collectively, our findings suggest that, while fraud is unmistakably bad, it appears to have the positive unintended consequence of attracting labor into business disciplines and, in accounting, increasing the prevalence of desirable traits among entrants.

Keywords: Financial Statement Fraud, Accounting, Labor Force; Higher Education

JEL Classification: K42; M41; R10, I23

Suggested Citation

Carnes, Robert and Christensen, Dane M. and Madsen, Paul E., Externalities of Financial Statement Fraud on the Incoming Accounting Labor Force (July 24, 2023). Available at SSRN: https://ssrn.com/abstract=4520039 or http://dx.doi.org/10.2139/ssrn.4520039

Robert Carnes

University of Florida ( email )

PO Box 117165, 201 Stuzin Hall
Gainesville, FL 32610-0496
United States

Dane M. Christensen

University of Oregon ( email )

1280 University of Oregon
Eugene, OR 97403
United States

Paul E. Madsen (Contact Author)

University of Florida ( email )

Gainesville, FL 32611
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
PlumX Metrics