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Corporate Lobbying Reduces FRAUD Detection
Posted By Barry Ritholtz On October 14, 2011 @ 6:00 am In Legal,Politics,Think Tank | Comments Disabled
CORPORATE LOBBYING AND FRAUD DETECTION
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.
Barclays Global Investors
Kelley School of Business
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URL to article: http://www.ritholtz.com/blog/2011/10/corporate-lobbying-reduces-fraud-detection/
URLs in this post:
 Lobbying Effective to Elude Fraud Investigations and Prosecutions: http://www.scribd.com/doc/68580838/Lobbying-Effective-to-Elude-Fraud-Investigations-and-Prosecutions
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