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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.

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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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