Understanding the Theoretical Underpinnings of Corporate Fraud

Desai, Naman

doi:10.1177/0256090920917789

Cited by 16 publications

(18 citation statements)

References 30 publications

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“…Investors also take into account the decrease in future flows and the increase in risk caused by these factors. Consistent with this, several previous studies have shown that stock prices react negatively when corrections are announced and that the negative reaction to MST caused by significant MST or fraud is particularly large (Desai 2020, Gupta 2015, Lev et al 2008, Palmrose et al 2004, Wu 2002. From this, it can be inferred that investors were misled by the MST until the correction was announced.…”

Section: Hypothesissupporting

confidence: 74%

“…Considering that MST is the unexpected profit, the argument at the beginning of this section implies that the larger MST is, the larger the negative CARI is. Consistent with this, almost all previous studies have reported that the larger the MST, the larger the stock price decline (Desai 2020, Gupta 2015, Lev et al 2008, Palmrose et al 2004, Wu 2002. From here, we formulate the following null hypothesis.…”

Section: Hypotheses Related To Carisupporting

confidence: 62%

“…For example, Beasley (2010) and Karpoff et al (2008a) examine the progress of law enforcement by authorities after date 1, and Griffin et al (2004) examine class-action lawsuits after date 1. In India, Desai (2020) examines the total reaction to each relevant disclosure between the first report of accounting fraud and the final investigation report or correction of the financial report that determines the content. These studies show that investors react to events that occur after date1 due to corrections, i.e., investors do not know all the economic consequences of corrections on date1.…”

Section: Investor Reaction To Further Information On the Correctionmentioning

confidence: 99%

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Investor Reaction to the Discovery of Accounting Fraud: The Period from the Discovery of the Fraud to the Completion of the Correction

Ahmad

Senan

Ali

et al. 2021

Acad. J. Interdiscip. Stud.

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This paper examines the period from the discovery of accounting fraud to the completion of correction and examines the reaction of investors on the date of the first news release suggesting accounting manipulation, the date of the subsequent release of information related to the amount of profit correction that was not disclosed on the date of the first news release, and the date of the submission of the correction report. The verification results show that the stock price falls sharply on the day of the first news release and the day when the information about the amount of profit revision is disclosed, that when the amount of profit revision is large and it takes time to disclose information about the amount of profit revision, there is a rebound in the stock price on the day when the correction report is submitted because investors like the resolution of uncertainty, and that there is a relationship between the amount of profit revision and the size of stock price decline. However, when there is no information about the amount of correction on the first day of the news release, investors react uniformly, and the reaction to a large (small) amount of correction is underreaction (overreaction). These results indicate that investors were misled by the misstatements until the fraud was discovered and made decisions based on overestimates of future cash flows, so they suffered unexpected losses when the fraud was discovered, and during the period from the fraud discovery to the completion of correction. Received: 3 August 2021 / Accepted: 6 October 2021 / Published: 5 November 2021

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Section: Hypothesissupporting

confidence: 74%

Section: Hypotheses Related To Carisupporting

confidence: 62%

Section: Investor Reaction To Further Information On the Correctionmentioning

confidence: 99%

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Investor Reaction to the Discovery of Accounting Fraud: The Period from the Discovery of the Fraud to the Completion of the Correction

Ahmad

Senan

Ali

et al. 2021

Acad. J. Interdiscip. Stud.

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“…The authors retained the first two components of the fraud triangle and swapped the third component – rationalization, with personal integrity (Vousinas, 2019). The authors contended that from a practical viewpoint, the fraud scale was superior to the fraud triangle because rationalization was difficult to operationalize, whereas personal integrity could be reliably gauged from past actions (Desai, 2020). Further, Wolfe and Hermanson (2004) made a notable attempt to expand the fraud triangle into the fraud diamond by introducing an additional prerequisite of fraud – capability.…”

Section: Literature Reviewmentioning

confidence: 99%

“…In most cases, the perpetrators’ positions provide the opportunity (Nindito, 2018). This explains why chief executive officer (CEOs) are typically involved in most high-profile frauds (Desai, 2020). According to some estimates, CEOs are involved in over 80% of corporate frauds (Mohamed et al , 2015).…”

Section: Literature Reviewmentioning

confidence: 99%

Red flag behaviors in financial services frauds: a mixed-methods study

Sandhu

2021

JFRC

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Purpose This study aims to enlist the red flag behaviors exhibited in financial services frauds. Design/methodology/approach A pluralistic mixed methodology was adopted in this study. Data collected via semi-structured interviews were coded, quantified and subjected to descriptive analysis to identify the most frequently exhibited red flag behaviors in financial services frauds. The relative risk of exhibition of the identified red flag behaviors was assessed by intuitively comparing the red flag behaviors identified in financial services frauds (experimental group, n = 24) with the red flag behaviors identified in a heterogeneous control sample of non-financial services frauds (control group, n = 28). Findings This study identifies six red flag behaviors likely to be more frequently exhibited in financial services frauds than in non-financial services frauds. Practical implications Results of this study can be used to develop a typical behavioral profile of a financial services fraud perpetrator. Active communication of this profile in fraud awareness training can help make fraud conspicuous in the financial services industry. Originality/value This study is unique because human behavior as a possible fraud indicator is an under-researched area. Further, this study examines first level of evidence and attempts an ex-post analysis of actual red flag behaviors exhibited in acknowledged fraud cases in which the perpetrator/perpetrators has/have been clearly identified.

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Theory of Crime Convenience

Gottschalk

2021

Detecting and Investigating Environmental Crime

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Understanding the Theoretical Underpinnings of Corporate Fraud

Cited by 16 publications

References 30 publications

Investor Reaction to the Discovery of Accounting Fraud: The Period from the Discovery of the Fraud to the Completion of the Correction

Investor Reaction to the Discovery of Accounting Fraud: The Period from the Discovery of the Fraud to the Completion of the Correction

Red flag behaviors in financial services frauds: a mixed-methods study

Theory of Crime Convenience

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