Large companies more likely to commit fraud, research shows

Small companies are less likely to be involved in corporate financial securities fraud
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Big-name Fortune 500 companies are more susceptible to committing fraud than smaller companies, according to a study published in Justice Quarterly

Researchers from three universities — Pennsylvania State, Washington State, and Miami — examined the characteristics of 250 public corporations across the US that were involved in Securities and Exchange Commission fraud filings from 2005 to 2013.

The study found that Fortune 500 companies were more likely to have “cooked books,” meaning they changed numbers dishonestly in their accounts.

One of the key findings in the study was that “prestigious companies, those that are household names, were actually more prone to engage in financial fraud,” according to the lead author, Jennifer Scwartz.

In the study, Scwartz added that “it was the companies that thought they should be doing better than they were, the ones with strong growth imperatives, those were the firms that were most likely to cheat.”

The study goes on to add that smaller, struggling businesses are less likely to engage in such activity.

It also found that the big companies whose CEO was also chair of the board were the ones more likely to commit fraud.

Moreover, the study found that firms traded on the New York Stock Exchange were two times more likely to commit fraud than those not on it.

Corporate financial securities fraud involves the action of illegally manipulating financial markets in one’s favour, so when companies commit this fraud, it results in a misrepresentation of the company’s financial status.

The researchers of this study noted that white-collar crimes of this nature are understudied and that the consequences of such a crime can be extremely devastating.

“It’s very, very damaging,” the study said. 

“Eventually, you have to make up for the money that was lost, that really never existed, so shareholders lose money, people lose retirement plans, [and] people lose jobs,” wrote Schwartz and co-authors.

In terms of changing the system and cracking down on fraud, the authors said “we need to look more at corporate leadership arrangements, and the responsibility of individuals in creating the culture of the company itself.”

Wiki Production Code: A0571

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