Journal of Financial and Quantitative Analysis Vol. 46 No. 6 2011
Corporate Lobbying and Fraud Detection
Abstract
This paper examines the relation between corporate lobbying and fraud detection. Using data on corporate lobbying expenses between 1998 and 2004, and a sample of large frauds detected during the same period, we find that firms’ lobbying activities make a significant difference in fraud detection: Compared to nonlobbying firms, on average, firms that lobby have a significantly lower hazard rate of being detected for fraud, evade fraud detection 117 days longer, and are 38% less likely to be detected by regulators. In addition, fraudulent firms on average spend 77% more on lobbying than nonfraudulent firms, and they spend 29% more on lobbying during their fraudulent periods than during nonfraudulent periods. The delay in detection leads to a greater distortion in resource allocation during fraudulent periods. It also allows managers to sell more of their shares.
- DOI
- 10.1017/s0022109011000457
- Volume
- 46
- Issue
- 6
- Pages
- 1865-1891
- Language
- en
- Sources
- openalex bibtex:phds-export.bib crossref