This paper examines the relation between corporate lobbying and fraud detection. Using data on corporate lobbying expenses between 1998 and 2004, and a sample of large frauds detected during the same period, we find that firms’ lobbying activities make a significant difference in fraud detection: compared to non-lobbying firms, firms that lobby on average have a significantly lower hazard rate of being detected for fraud, evade fraud detection 117 days longer, and are 38% less likely to be detected by regulators. In addition, fraudulent firms on average spend 77% more on lobbying than non-fraudulent firms, and spend 29% more on lobbying during their fraud periods than during their non-fraud periods. The delay in detection allows managers to postpone the negative market reaction and to sell more of their shares.

Frank Yu
Barclays Global Investors

Xiaoyun Yu
Kelley School of Business
Indiana University

Lobbying Effective to Elude Fraud Investigations and Prosecutions

Category: Legal, Politics, Think Tank

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

2 Responses to “Corporate Lobbying Reduces FRAUD Detection”

  1. Gabriel says:

    Go Barry!
    How long will you keep up with this kind of work?
    If you don’t have any ulterior motives behind this, I would encourage you to shoot for senate. The cleanup can only work from inside (unfortunately, the disease is too contagious once you get in though).

  2. JohnathanStein says:

    Barry — How you find this stuff, and find the time to blog it, is an utter mystery!