Welfare-enhancing fraudulent behavior

Haijin Lin () and David E. M. Sappington ()
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Haijin Lin: University of Houston
David E. M. Sappington: University of Florida

Review of Accounting Studies, 2015, vol. 20, issue 1, No 11, 343-370

Abstract: Abstract We demonstrate that an increased likelihood of fraud within an organization can benefit both the organization and its auditor. This is the case even though undetected fraud always harms both the organization and the auditor. The increased likelihood of fraud can induce the auditor to increase his auditing effort, which reduces the equilibrium incidence of undetected fraud and thereby benefits both the organization and the selected auditor.

Keywords: Welfare; Fraud; Earnings management; Auditing (search for similar items in EconPapers)
JEL-codes: D60 D73 G32 M42 (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1007/s11142-014-9297-4

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