How pervasive is corporate fraud?

Arbeitspapier

We provide a lower-bound estimate of the undetected share of corporate fraud. To identify the hidden part of the "iceberg," we exploit Arthur Andersen's demise, which triggered added scrutiny on Arthur Andersen's former clients and thereby increased the detection likelihood of preexisting frauds. Our evidence suggests that in normal times only one-third of corporate frauds are detected. We estimate that on average 10% of large publicly traded firms are committing securities fraud every year, with a 95% confidence interval of 7%-14%. Combining fraud pervasiveness with existing estimates of the costs of detected and undetected fraud, we estimate that corporate fraud destroys 1.6% of equity value each year, equal to $830 billion in 2021.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: New Working Paper Series ; No. 327

Classification and Topics

• Classification: Wirtschaft ; Corporate Finance and Governance: General ; Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance ; Business and Securities Law ; Accounting and Auditing: General
• Subject: Corporate governance ; Corporate fraud ; Detection likelihood ; Cost-beneft analysis ; Securities regulation ; Arthur Andersen

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Dyck, Alexander ; Morse, Adair ; Zingales, Luigi
• Event: Veröffentlichung
• (who): University of Chicago Booth School of Business, Stigler Center for the Study of the Economy and the State
• (where): Chicago, IL
• (when): 2023

Further information

• Handle: http://hdl.handle.net/10419/268480
• Last update: 10.03.2025, 11:44 AM CET