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Climate for Scandal: Corporate Environments that Contribute to Accounting Fraud


  • Claire E. Crutchley
  • Marlin R. H. Jensen
  • Beverly B. Marshall


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. Copyright 2007, The Eastern Finance Association.

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  • Claire E. Crutchley & Marlin R. H. Jensen & Beverly B. Marshall, 2007. "Climate for Scandal: Corporate Environments that Contribute to Accounting Fraud," The Financial Review, Eastern Finance Association, vol. 42(1), pages 53-73, February.
  • Handle: RePEc:bla:finrev:v:42:y:2007:i:1:p:53-73

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    References listed on IDEAS

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    3. Millon Cornett, Marcia & De, Sankar, 1991. "Medium of Payment in Corporate Acquisitions: Evidence from Interstate Bank Mergers," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(4), pages 767-776, November.
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    5. Dean F. Amel & Stephen A. Rhoades, 1989. "Empirical Evidence on the Motives for Bank Mergers," Eastern Economic Journal, Eastern Economic Association, vol. 15(1), pages 17-27, Jan-Mar.
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    7. Stephen A. Rhoades, 1996. "Bank mergers and industrywide structure," Staff Studies 169, Board of Governors of the Federal Reserve System (U.S.).
    8. Johnson, Shane A. & Sarkar, Salil K., 1996. "The valuation effects of the 1977 Community Reinvestment Act and its enforcement," Journal of Banking & Finance, Elsevier, vol. 20(5), pages 783-803, June.
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    1. repec:kap:jmgtgv:v:21:y:2017:i:3:d:10.1007_s10997-016-9357-1 is not listed on IDEAS
    2. Nancy Harp & Mark Myring & Rebecca Shortridge, 2014. "Do Variations in the Strength of Corporate Governance Still Matter? A Comparison of the Pre- and Post-Regulation Environment," Journal of Business Ethics, Springer, vol. 122(3), pages 361-373, July.
    3. Pulina, Manuela & Paba, Antonello, 2010. "A discrete choice approach to model credit card fraud," MPRA Paper 20019, University Library of Munich, Germany.

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