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Corporate Fraud, Governance and Auditing

Author

Listed:
  • Marco Pagano

    (Università di Napoli "Federico II", CSEF, EIEF and CEPR)

  • Giovanni Immordino

    (Università di Salerno and CSEF)

Abstract

We analyze corporate fraud in a setting in which managers have superior information but are biased against liquidation, because of their private benefits from empire building. This may induce them to misreport information and even bribe auditors when liquidation would be value-increasing. To curb fraud, shareholders optimally design internal corporate governance, by choosing audit quality and managerial compensation. Both internal governance mechanisms tend to substitute for poor shareholder protection; in contrast, audit quality tends to complement stricter auditing regulation. We also find that severance pay dominates both equity and option-based pay in improving managerial incentives.

Suggested Citation

  • Marco Pagano & Giovanni Immordino, 2009. "Corporate Fraud, Governance and Auditing," EIEF Working Papers Series 0909, Einaudi Institute for Economics and Finance (EIEF), revised Sep 2009.
  • Handle: RePEc:eie:wpaper:0909
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    References listed on IDEAS

    as
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    Cited by:

    1. Maurizio Iacopetta & Raoul Minetti & Pietro F. Peretto, 2014. "Financial markets industry dynamics and growth," Sciences Po publications info:hdl:2441/1ani1qs24g9, Sciences Po.
    2. Marco Pagano & Giovanni Immordino, 2007. "Optimal Regulation of Auditing," CESifo Economic Studies, CESifo, vol. 53(3), pages 363-388, September.
    3. repec:oup:rcorpf:v:4:y:2015:i:1:p:108-154. is not listed on IDEAS

    More about this item

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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