Between 1995 and 2021, the United States’ Federal Government imposed $162.5 billion in penalties upon government contractors who had engaged in improper behavior as part of the procurement process. Despite the enormity of contractor misbehavior, the characteristics associated with contractor misconduct are relatively underexplored in academic literature. In this study, we examine whether and to what extent firm characteristics predict federal government contractor misbehaviors, which range from minor statutory violations to fraud. We document a consistent association between contractor characteristics (size and total amount of government contracts received), contract-specific characteristics (service-type contracts and awarding agencies GSA and DOE), and the act of committing misconduct. Misconduct severity increases in size and total amount of government contracts, is not affected by service contracts, and has an inverse U-shape for government agencies. Taken together, our results suggest that characteristics of the contractor, contract, and government agency are predictably associated with committing procurement misconduct. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: H11; H57; M41.
{"title":"Predicting Federal Contractor Misconduct","authors":"Laura Alford, Stephen C. Hansen, Judith M. Hermis","doi":"10.2308/jfar-2021-011","DOIUrl":"https://doi.org/10.2308/jfar-2021-011","url":null,"abstract":"\u0000 Between 1995 and 2021, the United States’ Federal Government imposed $162.5 billion in penalties upon government contractors who had engaged in improper behavior as part of the procurement process. Despite the enormity of contractor misbehavior, the characteristics associated with contractor misconduct are relatively underexplored in academic literature. In this study, we examine whether and to what extent firm characteristics predict federal government contractor misbehaviors, which range from minor statutory violations to fraud. We document a consistent association between contractor characteristics (size and total amount of government contracts received), contract-specific characteristics (service-type contracts and awarding agencies GSA and DOE), and the act of committing misconduct. Misconduct severity increases in size and total amount of government contracts, is not affected by service contracts, and has an inverse U-shape for government agencies. Taken together, our results suggest that characteristics of the contractor, contract, and government agency are predictably associated with committing procurement misconduct.\u0000 Data Availability: Data are available from the public sources cited in the text.\u0000 JEL Classifications: H11; H57; M41.","PeriodicalId":149240,"journal":{"name":"Journal of Forensic Accounting Research","volume":"11 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127329496","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
To keep up with the demands from increasingly complex systems, information technology (IT) departments have sought IT professionals and frequently provided these individuals with privileged access to organizational systems early in their tenure. This study uses survey data obtained from the Association of Certified Fraud Examiners (ACFE) Research Institute, to examine occupational frauds committed by IT professionals versus frauds committed by non-IT personnel. The differences between IT and non-IT personnel can have an impact on organizational fraud. Findings show that IT perpetrators engage in fraud earlier in their tenure and generate similar losses to their non-IT counterparts but in shorter time frames. Organizational managers and forensic accountants should be aware of these important differences and consider the use of monitoring controls, such as management reviews of access and user activity, to detect fraud committed by IT perpetrators. This study provides several suggestions for future research in this vein. Data Availability: Data are available from the Association of Certified Fraud Examiners (ACFE). JEL Classifications: M480; L860; L250.
{"title":"An Examination of Occupational Fraud Committed by Information Technology Professionals","authors":"Richard B. Dull, Marie M. Rice","doi":"10.2308/jfar-2020-026","DOIUrl":"https://doi.org/10.2308/jfar-2020-026","url":null,"abstract":"\u0000 To keep up with the demands from increasingly complex systems, information technology (IT) departments have sought IT professionals and frequently provided these individuals with privileged access to organizational systems early in their tenure. This study uses survey data obtained from the Association of Certified Fraud Examiners (ACFE) Research Institute, to examine occupational frauds committed by IT professionals versus frauds committed by non-IT personnel. The differences between IT and non-IT personnel can have an impact on organizational fraud. Findings show that IT perpetrators engage in fraud earlier in their tenure and generate similar losses to their non-IT counterparts but in shorter time frames. Organizational managers and forensic accountants should be aware of these important differences and consider the use of monitoring controls, such as management reviews of access and user activity, to detect fraud committed by IT perpetrators. This study provides several suggestions for future research in this vein.\u0000 Data Availability: Data are available from the Association of Certified Fraud Examiners (ACFE).\u0000 JEL Classifications: M480; L860; L250.","PeriodicalId":149240,"journal":{"name":"Journal of Forensic Accounting Research","volume":"88 5 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126106438","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Andrea M. Scheetz, Ruwan Adikaram, Alyssa S. J. Ong
Race, gender, and marital status are demographic characteristics that have been shown to influence perceptions and decision making by others. Race and gender, as visible characteristics, influence bystander calls to police and arrests. Further, the race, gender, and marital status of defendants influences the granting of bail, prosecution, and punishment. We test whether the race, gender, and marital status of an alleged perpetrator also impact whistleblowing intentions when the perpetrator is believed to be selling Health Insurance Portability and Accountability Act of 1996 (HIPAA)-protected data. We find that the interaction of the race, gender, and marital status of the alleged perpetrator is a significant predictor of both internal and external whistleblowing. JEL Classifications: M49.
{"title":"Confronting Bias in Whistleblowing: How Race, Gender, and Marital Status Intersect in the Reporting of Unethical Conduct","authors":"Andrea M. Scheetz, Ruwan Adikaram, Alyssa S. J. Ong","doi":"10.2308/jfar-2023-009","DOIUrl":"https://doi.org/10.2308/jfar-2023-009","url":null,"abstract":"\u0000 Race, gender, and marital status are demographic characteristics that have been shown to influence perceptions and decision making by others. Race and gender, as visible characteristics, influence bystander calls to police and arrests. Further, the race, gender, and marital status of defendants influences the granting of bail, prosecution, and punishment. We test whether the race, gender, and marital status of an alleged perpetrator also impact whistleblowing intentions when the perpetrator is believed to be selling Health Insurance Portability and Accountability Act of 1996 (HIPAA)-protected data. We find that the interaction of the race, gender, and marital status of the alleged perpetrator is a significant predictor of both internal and external whistleblowing.\u0000 JEL Classifications: M49.","PeriodicalId":149240,"journal":{"name":"Journal of Forensic Accounting Research","volume":"198 S582","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"120851593","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Little is known about the factors that influence whistleblowing for contingent workers. This study compares the whistleblowing intentions of 146 traditional full-time and contingent workers. We find that contingent workers are significantly less likely to whistleblow than traditional full-time workers. Some of these differences in whistleblowing intentions appear to be due to feelings of powerlessness, organizational citizenship behavior, and organizational commitment that workers have in relation to their organizations. We offer future research ideas, implications for practice, and practical suggestions to encourage whistleblowing by contingent workers. JEL Classifications: M49.
{"title":"Outsiders Looking In: Do Contingent Workers Whistleblow?","authors":"D. K. Holderness, Andrea M. Scheetz, Joseph Wall","doi":"10.2308/jfar-2021-018","DOIUrl":"https://doi.org/10.2308/jfar-2021-018","url":null,"abstract":"\u0000 Little is known about the factors that influence whistleblowing for contingent workers. This study compares the whistleblowing intentions of 146 traditional full-time and contingent workers. We find that contingent workers are significantly less likely to whistleblow than traditional full-time workers. Some of these differences in whistleblowing intentions appear to be due to feelings of powerlessness, organizational citizenship behavior, and organizational commitment that workers have in relation to their organizations. We offer future research ideas, implications for practice, and practical suggestions to encourage whistleblowing by contingent workers.\u0000 JEL Classifications: M49.","PeriodicalId":149240,"journal":{"name":"Journal of Forensic Accounting Research","volume":"58 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121850631","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study reviews academic and professional literature on the two types of fraud motivation: incentive and pressure, and provides an in-depth analysis to investigate and differentiate incentive and pressure. The evolution of the professional standards on fraud reveals the need to differentiate incentive and pressure to mitigate fraud. A comprehensive review of academic research uncovers a plethora of fraud research that has studied incentive and pressure either discretely or without differentiation. Few studies have focused on examining and comparing them simultaneously. Theoretically grounded in the fraud triangle and motivation literature, this study synthesizes prior research on incentive and pressure, analyzes the differences by levels of autonomy and regulation. An experiment was conducted and results reveal that incentive and pressure differ in their role in influencing fraudulent intention. Incentive appears to be stronger in influencing fraud intention than pressure. We present the research implications and outline an agenda for future research.
{"title":"A Review of Literature and Experimental Evidence on Fraud Motivation: Differentiating Incentive and Pressure","authors":"R. Knisley, Hui Lin","doi":"10.2308/jfar-2020-024","DOIUrl":"https://doi.org/10.2308/jfar-2020-024","url":null,"abstract":"\u0000 This study reviews academic and professional literature on the two types of fraud motivation: incentive and pressure, and provides an in-depth analysis to investigate and differentiate incentive and pressure. The evolution of the professional standards on fraud reveals the need to differentiate incentive and pressure to mitigate fraud. A comprehensive review of academic research uncovers a plethora of fraud research that has studied incentive and pressure either discretely or without differentiation. Few studies have focused on examining and comparing them simultaneously. Theoretically grounded in the fraud triangle and motivation literature, this study synthesizes prior research on incentive and pressure, analyzes the differences by levels of autonomy and regulation. An experiment was conducted and results reveal that incentive and pressure differ in their role in influencing fraudulent intention. Incentive appears to be stronger in influencing fraud intention than pressure. We present the research implications and outline an agenda for future research.","PeriodicalId":149240,"journal":{"name":"Journal of Forensic Accounting Research","volume":"48 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2022-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121128913","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Darin Holderness Jr., Alyssa S. J. Ong, Mark F. Zimbelman
Fraud perpetrators realize the importance of conveying a positive first impression to others. We examine how auditors’ first impressions of client personnel interact with their supervisors’ preferences for audit effectiveness or efficiency to influence auditors’ risk judgments. We argue that auditors are typically focused on efficiency and, therefore, in an intuitive mindset that makes them susceptible to first impression biases. We therefore expect a positive (negative) first impression to decrease (increase) auditor objectivity and cause auditors to become less (more) sensitive to misstatement risk. We predict that supervisors’ preferences for effectiveness (over efficiency) will lead auditors to adopt an analytical mindset and mitigate the effects of first impressions. Our 2´2 experiment with 124 practicing auditors manipulates both first impression (positive vs. negative) and supervisor preference (effectiveness vs. efficiency) and supports our predictions. These findings build on first-impression research in psychology that suggests first impressions are subconscious and difficult to mitigate.
{"title":"Mitigating the Effects of Auditors’ First Impressions of Client Personnel: The Importance of Supervisors’ Preference for Effectiveness","authors":"Darin Holderness Jr., Alyssa S. J. Ong, Mark F. Zimbelman","doi":"10.2308/jfar-2020-028","DOIUrl":"https://doi.org/10.2308/jfar-2020-028","url":null,"abstract":"Fraud perpetrators realize the importance of conveying a positive first impression to others. We examine how auditors’ first impressions of client personnel interact with their supervisors’ preferences for audit effectiveness or efficiency to influence auditors’ risk judgments. We argue that auditors are typically focused on efficiency and, therefore, in an intuitive mindset that makes them susceptible to first impression biases. We therefore expect a positive (negative) first impression to decrease (increase) auditor objectivity and cause auditors to become less (more) sensitive to misstatement risk. We predict that supervisors’ preferences for effectiveness (over efficiency) will lead auditors to adopt an analytical mindset and mitigate the effects of first impressions. Our 2´2 experiment with 124 practicing auditors manipulates both first impression (positive vs. negative) and supervisor preference (effectiveness vs. efficiency) and supports our predictions. These findings build on first-impression research in psychology that suggests first impressions are subconscious and difficult to mitigate.","PeriodicalId":149240,"journal":{"name":"Journal of Forensic Accounting Research","volume":"23 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2022-08-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115150309","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Barra, Savage, and Im (2020) provide a mathematical model showing separation of duties (SOD) increases fraud, contradicting widespread and long-held beliefs. This paper argues that Barra et al.’s (2020) controversial conclusion relies on unrealistic assumptions. In particular, we object to the assumption that any randomly formed collusion group of the right size can commit fraud. Instead, we argue that a group can only commit fraud if it controls the duties of authorization, record-keeping, and custody of assets. In addition, we argue that assigning equal probabilities to outcomes assumes away the very feature of SOD that decreases fraud risk; namely, SOD adds a point of failure by requiring the fraudster to recruit other employees. We nevertheless show that SOD can increase fraud risk when its implementation requires hiring many new employees. However, other controls can be combined synergistically with SOD to restore its fraud-decreasing ability.
巴拉(Barra)、萨维奇(Savage)和伊姆(Im)(2020)提供了一个数学模型，显示职责分离(SOD)增加了欺诈行为，这与人们长期以来普遍持有的观点相矛盾。本文认为Barra et al.(2020)有争议的结论依赖于不切实际的假设。特别是，我们反对任何随机形成的适当规模的合谋集团都可能发生欺诈的假设。相反，我们认为，一个集团只有在控制了授权、记录保存和资产保管的职责时，才能实施欺诈。此外，我们认为，为结果分配等概率假设了SOD降低欺诈风险的特征;也就是说，通过要求欺诈者招聘其他员工，SOD增加了一个失败点。然而，我们表明，当SOD的实施需要雇用许多新员工时，它会增加欺诈风险。然而，其他控制可以与SOD协同结合，以恢复其减少欺诈的能力。
{"title":"A Second Look at a Mathematical Formulation of the Effectiveness of “Separation of Duties” as a Preventative Control Activity","authors":"Matthew T. Stern, Dwayne Powell, R. Knisley","doi":"10.2308/jfar-2021-017","DOIUrl":"https://doi.org/10.2308/jfar-2021-017","url":null,"abstract":"Barra, Savage, and Im (2020) provide a mathematical model showing separation of duties (SOD) increases fraud, contradicting widespread and long-held beliefs. This paper argues that Barra et al.’s (2020) controversial conclusion relies on unrealistic assumptions. In particular, we object to the assumption that any randomly formed collusion group of the right size can commit fraud. Instead, we argue that a group can only commit fraud if it controls the duties of authorization, record-keeping, and custody of assets. In addition, we argue that assigning equal probabilities to outcomes assumes away the very feature of SOD that decreases fraud risk; namely, SOD adds a point of failure by requiring the fraudster to recruit other employees. We nevertheless show that SOD can increase fraud risk when its implementation requires hiring many new employees. However, other controls can be combined synergistically with SOD to restore its fraud-decreasing ability.","PeriodicalId":149240,"journal":{"name":"Journal of Forensic Accounting Research","volume":"40 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2022-08-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130174402","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Heather Losi, Robert C. Giambatista, Douglas M. Boyle
The extant fraud literature indicates the Dark Triad personality trait of Machiavellianism can indicate behavioral warning signs, signal the motivation of a potential fraudster, and be used in a predictive approach to fraud assessments (Brody, Melendy, and Perri, 2012; Hermanson, Ramamoorti, and Richard, 2017). In a 2 X 2 experiment, this study examines the effects of client manager Machiavellian traits and fraud motivation on fraud risk assessments. We find that participants’ fraud risk assessments are higher when client traits are consistent with high Machiavellianism. We did not find a significant fraud motivation effect. The results indicate evidence of additional attitude/rationalization risk factors for consideration under the fraud triangle and the effects on judgment when assessing fraud risk. We provide insights on the ability of auditors to recognize high/low pressure/motivation situations within the context of a case study. Finally, the study provides evidence for documentation in consideration of fraud factors.
现存的欺诈文献表明，马基雅维利主义的黑暗三合一人格特征可以表明行为警告信号，表明潜在欺诈者的动机，并可用于欺诈评估的预测方法(Brody, Melendy, and Perri, 2012;Hermanson, Ramamoorti, and Richard, 2017)。在一个2 × 2的实验中，本研究考察了客户经理马基雅维利特征和欺诈动机对欺诈风险评估的影响。我们发现，当客户特征与高度马基雅维利主义相一致时，参与者的欺诈风险评估更高。我们没有发现显著的欺诈动机效应。结果表明，在欺诈三角中存在额外的态度/合理化风险因素，并对欺诈风险评估的判断产生影响。在案例研究的背景下，我们提供了审计师识别高/低压力/动机情况的能力的见解。最后，该研究为考虑欺诈因素的文件提供了证据。
{"title":"The Effects of Client Machiavellian Traits and Fraud Motivation on Fraud Risk Assessments","authors":"Heather Losi, Robert C. Giambatista, Douglas M. Boyle","doi":"10.2308/jfar-2021-021","DOIUrl":"https://doi.org/10.2308/jfar-2021-021","url":null,"abstract":"The extant fraud literature indicates the Dark Triad personality trait of Machiavellianism can indicate behavioral warning signs, signal the motivation of a potential fraudster, and be used in a predictive approach to fraud assessments (Brody, Melendy, and Perri, 2012; Hermanson, Ramamoorti, and Richard, 2017). In a 2 X 2 experiment, this study examines the effects of client manager Machiavellian traits and fraud motivation on fraud risk assessments. We find that participants’ fraud risk assessments are higher when client traits are consistent with high Machiavellianism. We did not find a significant fraud motivation effect. The results indicate evidence of additional attitude/rationalization risk factors for consideration under the fraud triangle and the effects on judgment when assessing fraud risk. We provide insights on the ability of auditors to recognize high/low pressure/motivation situations within the context of a case study. Finally, the study provides evidence for documentation in consideration of fraud factors.","PeriodicalId":149240,"journal":{"name":"Journal of Forensic Accounting Research","volume":"44 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2022-08-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130593906","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Poor corporate governance, insufficient regulatory supervision, and lack of compliance are susceptible factors for fraudulent activities in the Indian banking sector. This study examines the role of softer aspects like the CEO’s personality traits that instigate an organization's involvement in fraudulent activities. Our study proposes a conceptual model to examine the behavioral fabric of fraud by widening the scope of the existing corporate fraud models. The conceptual model is built upon three primary components: dark personality traits of the CEO leading to CEO hubris, internal firm factors, and external firm factors. The proposed model aims to analyze the massive fraud done at YES Bank, considered a pioneer for the Indian private banking sector. The study aims to contribute towards existing fraud theory literature by proposing a new model. It aims to contribute to the increasing sensitivity of forensic accountants towards examining the psychological and behavioral traits of a fraudster.
{"title":"YES Bank Fraud: Examining the softer underbelly of the fraud from a behavioral model","authors":"Jagannath Sharma Nistala, Divya Aggarwal","doi":"10.2308/jfar-2021-022","DOIUrl":"https://doi.org/10.2308/jfar-2021-022","url":null,"abstract":"Poor corporate governance, insufficient regulatory supervision, and lack of compliance are susceptible factors for fraudulent activities in the Indian banking sector. This study examines the role of softer aspects like the CEO’s personality traits that instigate an organization's involvement in fraudulent activities. Our study proposes a conceptual model to examine the behavioral fabric of fraud by widening the scope of the existing corporate fraud models. The conceptual model is built upon three primary components: dark personality traits of the CEO leading to CEO hubris, internal firm factors, and external firm factors. The proposed model aims to analyze the massive fraud done at YES Bank, considered a pioneer for the Indian private banking sector. The study aims to contribute towards existing fraud theory literature by proposing a new model. It aims to contribute to the increasing sensitivity of forensic accountants towards examining the psychological and behavioral traits of a fraudster.","PeriodicalId":149240,"journal":{"name":"Journal of Forensic Accounting Research","volume":"72 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2022-08-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126925886","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Financial restatements have been shown to be associated with management reputation loss and turnover. The literature on cost stickiness has shown that cost stickiness has been associated with both management optimism as well as agency and behavioral issues such as empire building. In this paper, we investigate the relationship between Selling, General and Administrative (SG&A) cost stickiness and financial restatements. We show that SG&A cost stickiness decreased significantly post financial restatements, and the decrease was significantly more in the case of restatements associated with fraud than those not associated with fraud. Our results are consistent with financial restatements acting as a disciplining device for possible managerial excesses, and that firms work harder when fraud was associated with a restatement than when it was not to reduce SG&A cost stickiness.
{"title":"Financial Restatement and Selling, General and Administrative (SG&A) Cost Stickiness","authors":"Chih-Chen Lee, K. Surysekar, Tian Tian","doi":"10.2308/jfar-2021-020","DOIUrl":"https://doi.org/10.2308/jfar-2021-020","url":null,"abstract":"Financial restatements have been shown to be associated with management reputation loss and turnover. The literature on cost stickiness has shown that cost stickiness has been associated with both management optimism as well as agency and behavioral issues such as empire building. In this paper, we investigate the relationship between Selling, General and Administrative (SG&A) cost stickiness and financial restatements. We show that SG&A cost stickiness decreased significantly post financial restatements, and the decrease was significantly more in the case of restatements associated with fraud than those not associated with fraud. Our results are consistent with financial restatements acting as a disciplining device for possible managerial excesses, and that firms work harder when fraud was associated with a restatement than when it was not to reduce SG&A cost stickiness.","PeriodicalId":149240,"journal":{"name":"Journal of Forensic Accounting Research","volume":"16 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2022-08-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115621779","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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