Working Paper

Information Production, Misconduct Effort, and the Duration of Corporate Fraud


Abstract: We develop and test a model linking the duration of financial fraud to information produced by auditors and analysts and efforts by managers to conceal the fraud. Our empirical results suggest fraud termination is more likely in the quarter following the release of audited financial statements, especially when reports contain explanatory language, indicating auditors? observable signals reduce fraud duration. Analyst attention increases the likelihood of fraud termination, but the marginal effect beyond the first analyst is negative, possibly due to free riding and herding behavior impairing analysts? ability to illuminate misconduct. Finally, evidence suggests managerial concealment significantly increases fraud duration.

Keywords: Auditor reports; Information production; Fraud effort; Fraud duration; Hazard models;

JEL Classification: G38; G34; M41; L51; K22; K42;

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Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Working Papers (Old Series)

Publication Date: 2016-06-01

Number: 1613

Pages: 89 pages