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Financial Prominence and Financial Conditions: Risk Factors for 21st Century Corporate Financial Securities Fraud in the United States

NCJ Number
304883
Journal
Justice Quarterly Dated: 2021
Author(s)
J. Schwartz; et al
Date Published
2021
Annotation

Following the global financial crisis wrought by fraudulent activities of prominent US companies and considering the field’s lack of understanding about precursors to such vast corporate illegalities, this study measured firm prominence and financial conditions to identify corporate-organizational factors related to twenty-first century corporate financial fraud.

 

Abstract

We compiled data on 250+ US public companies involved in corporate securities frauds identified in 1,000+ Securities and Exchange Commission filings over 2005–2013; we randomly selected a comparable control group of 500+ US public companies from Compustat. Based on logistic multivariate regression analyses, marginal profitability, a strong growth imperative, and firm prominence were significant fraud risk factors. Prominent Fortune 500 firms were more susceptible to marginal profitability and/or strong growth-opportunities as risk factors. Findings were robust to various empirical measures and additional controls for undetected fraud. Anomic growth pressures and profit constraints, especially among America’s most prestigious firms, were linked to corporate securities fraud. (Publisher Abstract Provided)