The Department of Justice as a gatekeeper in whistleblower-initiated corporate fraud enforcement: Drivers and consequences

We examine drivers and consequences of U.S. Department of Justice (DOJ) oversight of whistleblower cases of corporate fraud against the government. We find that the DOJ is more likely to intervene in and conduct longer investigations of cases that have a higher chance of victory and yield greater monetary proceeds, indicating that DOJ enforcement is influenced by its performance measures. DOJ intervention also affects the firm- and aggregate-level fraud environment. Firms subject to DOJ intervention improve their employee relations, internal controls, and board independence, and experience lower future whistleblowing risk. Whistleblowers avoid courts and agencies with low DOJ intervention rates. In contrast, we do not find that cases pursued by whistleblowers alone affect firms' or whistleblowers' behavior, suggesting that public enforcement through DOJ intervention has a greater deterrent effect on fraud than private enforcement by whistleblowers acting alone.     

Employer strategies to combat health care plan fraud

Each year health care fraud drains millions of dollars from employer-sponsored health plans. Historically, employers have taken a rather tolerant view of fraud. As the pressure to manage health plan costs increases, however, many employers are beginning to see the detection and prosecution of fraud as an appropriate part of a cost management program. Fraud in medical insurance covers a wide range of activities in terms of cost and sophistication--from misrepresenting information on a claim, to billing for services never rendered, to falsifying the existence of an entire medical organization. To complicate matters, fraudulent activities can emanate from many, many sources. Perpetrators can include employees, dependents or associates of employees, providers and employees of providers--virtually anyone able to make a claim against a plan. This article addresses actions that employers can take to reduce losses from fraud. The first section suggests policy statements and administrative procedures and guidelines that can be used to discourage employee fraud. Section two addresses the most prevalent form of fraud--provider fraud. To combat provider fraud, employers should set corporate guidelines and should enlist the assistance of employees in identifying fraudulent provider activities. Section three suggests ways to improve fraud detection through the claims payment system--often the first line of defense against fraud. Finally, section four discusses the possibility of civil and criminal remedies and reviews the legal theories under which an increasing number of fraud cases have been prosecuted.     

The dark side of marital leadership: Evidence from China

Using a unique dataset of Chinese private firms, we find that marital leadership is associated with higher propensity for financial fraud. We examine the potential economic mechanisms that lead to this result, finding that weak internal supervision and inefficient decision-making provide crucial linkages between marital leadership and financial fraud. However, well-functioning corporate governance mechanisms reduce the negative effects of marital leadership. Our findings provide important empirical evidence for the effect of family involvement in corporate governance and contribute to the literature on the determinants of financial fraud in listed firms.     

Corporate fraud and investment distortions in efficient capital markets

Inefficient investment allocation induced by corporate fraud, where informed insiders strategically manipulate outside investors' beliefs, has been endemic historically and has recently attracted much attention. We reconcile corporate fraud and investment distortions with efficient capital markets, building on shareholder‐manager agency conflicts and investment renegotiation in active takeover markets. Because investments that are ex post inefficient are not renegotiation proof, the optimal renegotiation‐proof contract induces overstatements by managers, accompanied by overinvestment in low return states and underinvestment in high return states by rational investors. Our framework also helps explain why easy access to external capital appears to facilitate corporate fraud.     

保险治理与公司违规——董事高管责任保险的治理效应研究

公司治理机制被认为是影响公司违规的重要因素,然而董事高管责任保险作为一种重要的外部治理机制,是否会影响公司违规尚未得到充分研究。本文研究发现董事高管责任保险显著降低公司违规概率,符合监督效应假说。经工具变量法、Heckman两阶段模型和倾向得分匹配法稳健性检验,上述结论依然成立。影响机制分析表明,董事高管责任保险显著降低了公司违规倾向,显著增加了违规后被稽查的概率,并降低了上市公司的第一类代理成本。对董事高管责任保险的监督职能做进一步分析发现:(1)董事高管责任保险对上市公司经营违规和领导人违规的监督效应更为显著,但对信息披露违规的治理作用并不显著;(2)董事高管责任保险发挥的监督职能与股权属性和保险机构股东治理存在替代效应,与外部审计师治理和董事长CEO二职分离存在互补效应;(3)分组检验结果表明,董事高管责任保险对公司违规的监督效应在外部监管环境较差或者公司内部信息透明度较高的情况下更加显著。本文既提供了保险合约通过公司治理渠道影响公司违规的证据,同时也表明保险机构通过董事高管责任保险为中国资本市场提供了一种较为有效的公司外部治理机制。     

Corporate Fraud and Corporate Bond Costs: Evidence from China

This study investigates the relationship between corporate fraud and four typical components of costs associated with corporate bonds. Based on data from a booming corporate bond market in China, we confirm that fraudulent issuers have higher corporate bond costs. Specifically, they are more likely to push upward price revisions, pay higher issue fees and coupon spreads, and encounter larger underpricing after issuance. Moreover, we demonstrate that severe corporate fraud is also significantly related to the costs of corporate bonds. Furthermore, we find that investors pay more attention to fraud in accounting information and disclosure. These results remain robust to a strand of endogeneity and through the robustness tests. In additional research, we find that bonds issued by fraudulent firms tend to receive lower ratings and show inferior performance after issuance. We also demonstrate that the effects of corporate fraud on bond costs erode as time passes, although the mitigation speed is slow. Finally, we find that hiring reputable financial intermediaries can partially mitigate the negative effects of corporate fraud.     

Who Blows the Whistle on Corporate Fraud?

To identify the most effective mechanisms for detecting corporate fraud, we study all reported fraud cases in large U.S. companies between 1996 and 2004. We find that fraud detection does not rely on standard corporate governance actors (investors, SEC, and auditors), but rather takes a village, including several nontraditional players (employees, media, and industry regulators). Differences in access to information, as well as monetary and reputational incentives, help to explain this pattern. In‐depth analyses suggest that reputational incentives in general are weak, except for journalists in large cases. By contrast, monetary incentives help explain employee whistleblowing.     

Internal audit,alternative internal audit structures and the level of misappropriation of assets fraud

In recent years, the importance of good corporate governance has received significant public and regulatory attention. A crucial part of an entity's corporate governance is its internal audit function. At the same time, there has been significant public concern about the level of fraud within organizations. The purpose of this study is to assess whether organizations with an internal audit function are more likely to detect and self‐report fraud than those without. In this study, we use a unique self‐reported measure of misappropriation of assets fraud for the first time. The fraud data are from the 2004 KPMG Fraud Survey, which reported fraud from 491 organizations in the private and public sector across Australia and New Zealand. The internal audit data are from a separate mail survey sent to the respondents of the KPMG Fraud Survey. We find that organizations with an internal audit function are more likely than those without such a function to detect and self‐report fraud. Furthermore, organizations that rely solely on outsourcing for their internal audit function are less likely to detect and self‐report fraud than those that undertake at least part of their internal audit function themselves. These findings suggest that internal audit adds value through improving the control and monitoring environment within organizations to detect and self‐report fraud. These results also suggest that keeping the internal audit function within the organization is more effective than completely outsourcing that function.     

信用债违约特征与市场展望

从总量的角度来看,信用债违约主体数量呈现上升的趋势,违约主体的行业、地区分布相对较为分散,各主体的违约特征呈现多元化的趋势,受经济增速下行压力加大、民企再融资收紧、股票质押爆仓等因素的影响较为明显。结合微观企业违约的最新特点,在信用风险分析的过程中需要重点关注企业是否发生了投资激进、短债长投、公司治理风险、财务舞弊等问题。建议正本清源,加强对财务造假的惩治力度,强化企业信息披露,推进社会信用体系建设,发挥民营企业信用缓释工具作用。     

Corporate Scandals and Household Stock Market Participation

We show that, after the revelation of corporate fraud in a state, household stock market participation in that state decreases. Households decrease holdings in fraudulent as well as nonfraudulent firms, even if they do not hold stocks in fraudulent firms. Within a state, households with more lifetime experience of corporate fraud hold less equity. Following the exogenous increase in fraud revelation due to Arthur Andersen's demise, states with more Arthur Andersen clients experience a larger decrease in stock market participation. We provide evidence that the documented effect is likely to reflect a loss of trust in the stock market.     

Profiting from destruction: The Iraq reconstruction,auditing and the management of fraud

While several US corporations have benefited tremendously from the Iraq reconstruction, the Iraqis and US taxpayers have not done as well. This paper argues that the Bush Administration's neoliberal agenda in Iraq created a corrupt, lawless environment in which corporations could reap huge profits through what would normally be called malfeasance. It further demonstrates how the audit reports produced by the Office of the Special Inspector General for Iraq Reconstruction helped to manage the impact of this massive fraud by giving the perception that the laissez-faire policies of the Bush administration were innocent mistakes, making the failures appear to be independent of one another, reconstructing corporate malfeasance as waste while criminalizing low level employees, and blaming the government agencies, the war and the Iraqis for the fraud.     

The impact of corporate fraud on director‐interlocked firms: Evidence from bank loans

We examine the impact of corporate fraud committed by one firm (the “fraudulent firm”) on other firms with interlocking directors (the “interlocked firms”), focusing on the debtholder side. We argue that the revelation of a fraudulent firm's fraud can damage the reputation of the interlocked firms because corporate governance can propagate via director interlocks. Empirically, we find that the interlocked firms' cost of debt is higher and the loan covenants become stricter after the fraud cases of the fraudulent firms are revealed. Consistent with the corporate governance propagation explanation, our results are weaker (stronger) for interlocked firms that have better (worse) pre‐event corporate governance standards. Our findings suggest that corporate fraud of fraudulent firms can affect other firms through director‐interlocks beyond shareholder value.     

Digital finance and corporate financial fraud

Corporate financial fraud harms the interests of investors and affects the healthy development of the capital market. Understanding corporate financial fraud has important academic value and practical significance. Digital finance been rapidly developing over the past few years and scholars are investigating strategies for using digital finance as a tool to curb corporate financial fraud. This paper empirically examines the direct effect, intrinsic mechanism, and heterogeneous effect of digital finance on corporate financial fraud based on panel data of A-share listed corporations in China from 2011 to 2020. Results show that digital finance significantly inhibits corporate financial fraud. The breadth of coverage and depth of usage within digital finance show inhibitory effects on corporate financial fraud. This suggests that a combination of coverage and depth is needed to improve the success of digital finance on corporate financial fraud. The internal mechanisms suggest that digital finance inhibits corporate financial fraud by alleviating financing constraints, reducing corporate leverage, and decreasing agency costs. The heterogeneity analysis shows digital finance has a greater inhibitory effect for large-scale corporates, state-owned corporates, and corporates in areas with low degree of marketization. Our findings can provide reference for financial institutions, investors, analysts, and regulators to improve the quality of decision-making.     

Fraud commitment in a smaller world: Evidence from a natural experiment

This study examines the effect of proximity on corporate fraud commitment using the introduction of high-speed rail (HSR) as an exogenous shock to travel time. We find that firms commit less corporate fraud after the introduction of an HSR route. A dynamic difference-in-differences (DiD) analysis shows that the effect of HSR introduction on fraud only occurs after the HSR route is launched, supporting the parallel trends assumption and confirming the causal relationship. Further analysis shows that the negative impact of HSR introduction on corporate fraud is more pronounced for firms that have higher information asymmetry or weaker monitoring mechanisms in the pre-HSR period. In addition, we find that HSR introduction increases corporate site visits by external monitors and that visits significantly reduce corporate misbehavior. Overall, our findings suggest that HSR introduction increases proximity and thereby reduces the information acquisition costs for outside monitors. As a result, outside monitors are in a better position to oversee firms, leading to decreased fraud commitment.     

The impact of investor protection law on corporate policy and performance: Evidence from the blue sky laws

Recent studies have debated the impact of investor protection law on corporate behavior and value. I exploit the staggered passage of state securities fraud statutes (“blue sky laws”) in the United States to estimate the causal effects of investor protection law on firm financing decisions and investment activity. The statutes induce firms to increase dividends, issue equity, and grow in size. The laws also facilitate improvements in operating performance and market valuations. Overall, the evidence is strongly supportive of theoretical models that predict investor protection law has a significant impact on corporate policy and performance.     

论资本市场注册会计师吹哨人制度的构建

注册会计师吹哨人制度的构建是吹哨人制度在资本市场的应用,也是及时发现、有效防范上市公司财务舞弊的重要途径。英美两国均已通过成文法的形式确立了包括注册会计师在内的证券监管领域吹哨人制度,但两者在吹哨义务人范围、吹哨事项、通报程序等制度设计方面存在一定差异。针对国内相关法制缺失的现状,可借鉴美英经验,通过主体、对象、事项、程序、保护、奖励、惩罚等七个方面建立完善我国注册会计师吹哨人制度。     

Ownership structure,corporate governance,and fraud: Evidence from China

Our study examines whether ownership structure and boardroom characteristics have an effect on corporate financial fraud in China. The data come from the enforcement actions of the Chinese Securities Regulatory Commission (CSRC). The results from univariate analyses, where we compare fraud and no-fraud firms, show that ownership and board characteristics are important in explaining fraud. However, using a bivariate probit model with partial observability we demonstrate that boardroom characteristics are important, while the type of owner is less relevant. In particular, the proportion of outside directors, the number of board meetings, and the tenure of the chairman are associated with the incidence of fraud. Our findings have implications for the design of appropriate corporate governance systems for listed firms. Moreover, our results provide information that can inform policy debates within the CSRC.     

Gender diversity and financial statement fraud

This study investigates the role of gender diversity in fraud commission and detection with a view to identifying whether companies with more female corporate leaders are less likely to be involved in financial statement fraud. Using a bivariate probit model, the role of female corporate leaders in financial statement fraud commission and detection is examined for Chinese listed companies from 2007 to 2018. The representation of female corporate leaders increases the likelihood of fraud detection, thus reducing firms’ propensity to engage in fraud. The finding confirms that women are risk averse and more committed to ethical practices than men in corporate leadership positions. Moreover, this impact of gender diversity is contingent upon the nature of ultimate controllers of listed companies: more female representation in top leadership roles can mitigate fraud commission or detect fraud effectively in non-state-owned enterprises, but not in state-owned enterprises. In addition, the recent anti-corruption campaign initiated by Chinese President Jinping Xi is a powerful form of public governance. Female corporate leaders play a more positive role in mitigating fraud commission and detecting fraud commission in the post-campaign period than in the pre-campaign period.     

The apparatus of fraud risk

‘Fraud risk’ is ontologically different from fraud. Fraud itself is a disruptive event; fraud risk can and must be governed. This essay draws on Foucault’s concept of an apparatus (dispositif) to explain the emergence of this difference. The analysis begins with a concrete case and explicates the history of fraud risk which flows through a specific organizational setting. First, it is claimed that fraud risk must be understood in relation to the broader historicity of risk in which risk expands its reach as an organizing practice category. Second, it is argued that the diverse elements of the fraud risk apparatus – words, laws, best practice guides, risk maps, websites, compliance officers, text books, regulatory judgments and many more – have a trajectory of formation. This trajectory begins with auditing and expands into risk management, regulation and security more generally. Fraud risk management emerges as a highly articulated, transnational web of ideas and procedures which frame the future within present organizational actions, and which intensify the responsibility of senior managers. Overall, the paper challenges the common sense idea that the present shape of fraud risk management is a functional necessity demanded by fraud events. The purpose is to display the historically contingent regime of truth for speaking about fraud, risk and responsibility in organizations. The paper suggests that this ‘regime of truth’ consists in a form of managerial and regulatory knowledge with a ‘grammar’ governing rules for talking about and acting on risky subjects and organizations. The rise of ‘fraud risk’ management and its prominent position within the field of corporate governance in the 21st century is emblematic of an ongoing neoliberal project of individualization and responsibilization.