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Climate for Scandal: Corporate Environments that Contribute to Accounting Fraud

Author

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

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

  • 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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    File URL: https://doi.org/10.1111/j.1540-6288.2007.00161.x
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    4. repec:bla:eufman:v:20:y:2014:i:3:p:596-632 is not listed on IDEAS
    5. Aigbe Akhigbe & Anna D. Martin & Melinda L. Newman, 2010. "Information Asymmetry Determinants of Sarbanes‐Oxley Wealth Effects," Financial Management, Financial Management Association International, vol. 39(3), pages 1253-1272, September.
    6. repec:kap:jbuset:v:148:y:2018:i:3:d:10.1007_s10551-015-2949-x is not listed on IDEAS
    7. 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.
    8. 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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    10. Irena Hutton & Danling Jiang & Alok Kumar, 2015. "Political Values, Culture, and Corporate Litigation," Management Science, INFORMS, vol. 61(12), pages 2905-2925, December.

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