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Climate for Scandal: Corporate Environments that Contribute to Accounting Fraud
Author(s) -
Crutchley Claire E.,
Jensen Marlin R. H.,
Marshall Beverly B.
Publication year - 2007
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.2007.00161.x
Subject(s) - accounting , commission , corporate governance , business , earnings , audit , accrual , compensation (psychology) , audit committee , executive compensation , finance , psychology , psychoanalysis
We examine the governance characteristics, earnings quality, growth rates, dividend policy, and compensation structure of 97 firms recently under investigation by the Securities and Exchange Commission (SEC) for accounting fraud. Our results show that the corporate environment most likely to lead to an accounting scandal manifests significant growth and accounting practices that are already pushing the envelope of earnings smoothing. Firms operating in this environment seem more likely to tip over the edge into fraud if there are fewer outsiders on the audit committee and outside directors appear overcommitted.