Economic and Non-Economic Variables Affecting Fraud in European Countries

Bashir Ahmad, Maria Ciupac-Ulici and Daniela-Georgeta Beju
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Bashir Ahmad: Department of Finance, Université Paris 1 Panthéon-Sorbonne, 75231 Paris, France
Maria Ciupac-Ulici: IPAG Business School, France & Hyperion University, 030615 Bucharest, Romania
Daniela-Georgeta Beju: Department of Finance, Faculty of Economics and Business Administration, Babes-Bolyai University, 400591 Cluj-Napoca, Romania

Risks, 2021, vol. 9, issue 6, 1-17

Abstract: Fraud is one of the most harmful phenomena, because it leads to collapse of organizations, causes economic downfall of countries, and destroys faith in a country’s capital markets. The impact of fraud is complex and has varying degrees depending on political and financial institutional structures of a country. In this paper, we investigate the combined effect of economic and non-economic variables on fraud using a sample of 41 developed, in transition, and developing European countries. The data cover the period July 2014–December 2020. Panel data techniques of pooled estimation and the dynamic panel data/generalized method of moments (DPD/GMM) is used, keeping in view the endogeneity perspective. Nevertheless, two-way impacts of fixed effect model estimation—cross-sectional and time-based (panel) effects (alternatively)—are used for analyzing the relationship among the given variables, based on Hausman specification test results. Empirical results of panel data extended REM and FEM approaches with country-specific cross-sectional effects showing that political stability, economic freedom, poverty, and GDP significantly affect fraud proliferation. Political stability is appraised to be the most scoring determinant of fraud incidence in a country.

Keywords: fraud; corruption; business operational risk; economic freedom; gross domestic product; political stability; poverty; type of governance; inflation; unemployment (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2021
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