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Brandeis' Policeman: Results from a Laboratory Experiment on How to Prevent Corporate Fraud
Author(s) -
Guttentag Michael D.,
Porath Christine L.,
Fraidin Samuel N.
Publication year - 2008
Publication title -
journal of empirical legal studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.529
H-Index - 24
eISSN - 1740-1461
pISSN - 1740-1453
DOI - 10.1111/j.1740-1461.2008.00124.x
Subject(s) - publicity , salient , accounting , government (linguistics) , business , replicate , constructive fraud , public relations , economics , political science , law , marketing , linguistics , philosophy , statistics , mathematics
We use a laboratory experiment to study how to prevent corporate fraud. Our experiment is the first to replicate the salient features of corporate fraud in a controlled setting. We find that requiring additional disclosures significantly reduces fraud. This finding runs counter to implications from previous research, but that research does not include many of the defining aspects of corporate fraud. Our results support the federal government's continued reliance on disclosure as a way to reduce fraud, a reliance that dates back to Louis Brandeis' observation that “publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants; electric light the most efficient policeman.”