Who Blows the Whistle on Corporate Fraud?

Luigi Zingales, Alexander Dyck and Adair Morse

No 6126, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: What external control mechanisms are most effective in detecting corporate fraud? To address this question we study in depth all reported cases of corporate fraud in companies with more than 750 million dollars in assets between 1996 and 2004. We find that fraud detection does not rely on one single mechanism, but on a wide range of, often improbable, actors. Only 6% of the frauds are revealed by the SEC and 14% by the auditors. More important monitors are media (14%), industry regulators (16%), and employees (19%). Before SOX, only 35% of the cases were discovered by actors with an explicit mandate. After SOX, the performance of mandated actors improved, but still account for only slightly more than 50% of the cases. We find that monetary incentives for detection in frauds against the government influence detection without increasing frivolous suits, suggesting gains from extending such incentives to corporate fraud more generally.

Keywords: Corporate finance; Corporate governance (search for similar items in EconPapers)
JEL-codes: G3 (search for similar items in EconPapers)
Date: 2007-02
New Economics Papers: this item is included in nep-cfn
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Citations: View citations in EconPapers (23)

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Related works:
Journal Article: Who Blows the Whistle on Corporate Fraud? (2010)
Working Paper: Who Blows the Whistle on Corporate Fraud? (2007)
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