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Review of Accounting Studies Vol. 29 No. 1 2024

How pervasive is corporate fraud?

Alexander Dyck1; Adair Morse2; Luigi Zingales3,4,5

1 University of Toronto · 2 University of California, Berkeley · 3 University of Illinois Chicago · 4 University of Chicago · 5 Centre for Economic Policy Research

open access

Abstract

We provide a lower-bound estimate of the undetected share of corporate fraud. To identify the hidden part of the “iceberg,” we exploit Arthur Andersen’s demise, which triggered added scrutiny on Arthur Andersen’s former clients and thereby increased the detection likelihood of preexisting frauds. Our evidence suggests that in normal times only one-third of corporate frauds are detected. We estimate that on average 10% of large publicly traded firms are committing securities fraud every year, with a 95% confidence interval of 7%-14%. Combining fraud pervasiveness with existing estimates of the costs of detected and undetected fraud, we estimate that corporate fraud destroys 1.6% of equity value each year, equal to $830 billion in 2021.

DOI
10.1007/s11142-022-09738-5
Volume
29
Issue
1
Pages
736-769
Language
en
Sources
crossref bibtex:phds-export.bib openalex

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