Evaluation of fraud examinations: a principal-agent study of private internal investigations

Petter Gottschalk

International Journal of Business Continuity and Risk Management, 2018, vol. 8, issue 1, 36-48

Abstract: Agency theory suggests that problems in terms of conflicting preferences, knowledge asymmetry and different attitudes towards risks can have a negative impact on work outcome from the agent to the principal. In private internal investigations, the client is the principal, while the fraud examiner is the agent. Based on a sample of 49 reports of investigation from Norway, this article presents empirical results testing agency theory. Results indicate that agency issues do have a significant influence on the contribution from internal investigations, but the influence is not necessarily negative. While different attitudes towards risk have a negative impact, knowledge asymmetry has a positive impact on the contribution from an investigation. A possible explanation for this surprising result is that examiners are experts in other areas than the client, which is the reason why examiners are hired by clients.

Keywords: agency theory; fraud examination; internal investigations; conflicting preferences. (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:ids:ijbcrm:v:8:y:2018:i:1:p:36-48

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