Researchers from Washington State University, Pennsylvania State University, and Miami University examined the characteristics of more than 250 U.S. public corporations that were involved in financial securities fraud identified in Securities and Exchange Commission filings from 2005-2013. They were then compared to a control sample of firms that were not named in SEC fraud filings.

Jennifer Schwartz.
Schwartz

“Prestigious companies, those that are household names, were actually more prone to engage in financial fraud, which was very surprising,” said Jennifer Schwartz, WSU sociologist and lead author on the study. “We thought it would be companies that were struggling financially, that were nearing bankruptcy, but it was quite the opposite. 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.”

“What these companies were doing was essentially fudging the numbers, lying to investors, other companies and the SEC,” said Schwartz. “Eventually, you have to make up for the money that was lost, that really never existed, so shareholders lose money, people lose retirement plans, people lose jobs. It’s very, very damaging.”

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