Climate for Scandal: Corporate Environments that Contribute to Accounting Fraud

21 Pages Posted: 12 Jan 2007

See all articles by Claire E. Crutchley

Claire E. Crutchley

Auburn University

Marlin R.H. Jensen

Auburn University

Beverly B. Marshall

Auburn University Harbert College of Business

Abstract

We examine the governance characteristics, earnings quality, growth rates, dividend policy, and compensation structure of 97 firms recently under investigation by the Securities and Exchange Commission (SEC) for accounting fraud. Our results show that the corporate environment most likely to lead to an accounting scandal manifests significant growth and accounting practices that are already pushing the envelope of earnings smoothing. Firms operating in this environment seem more likely to tip over the edge into fraud if there are fewer outsiders on the audit committee and outside directors appear overcommitted.

Suggested Citation

Crutchley, Claire E. and Jensen, Marlin R.H. and Marshall, Beverly B., Climate for Scandal: Corporate Environments that Contribute to Accounting Fraud. Financial Review, Vol. 42, No. 1, pp. 53-73, February 2007. Available at SSRN: https://ssrn.com/abstract=956679 or http://dx.doi.org/10.1111/j.1540-6288.2007.00161.x

Claire E. Crutchley (Contact Author)

Auburn University ( email )

415 West Magnolia Avenue
303 Lowder Business Building
Auburn, AL 36849
United States
334-844-3002 (Phone)
334-844-4960 (Fax)

Marlin R.H. Jensen

Auburn University ( email )

415 West Magnolia Avenue
Auburn, AL 36849
United States
334-844-3006 (Phone)

Beverly B. Marshall

Auburn University Harbert College of Business ( email )

415 Magnolia Ave.
Auburn, AL 36849
United States

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