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Fortune 500 firms with strong growth profiles are more susceptible to “cooking the books” than smaller, struggling companies, according to a recent study published in Justice Quarterly.
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.
“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.”
Corporate financial securities fraud involves attempts to manipulate financial markets in a business’ favor by using faulty accounting practices, providing false or incomplete information or otherwise misrepresenting the company’s financial status.