Corporate Lobbying and Fraud Detection

Fang Yu (First Author), Xiaoyun Yu (Participant Author)

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Abstract

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 nonlobbying firms, on average, firms that lobby 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 nonfraudulent firms, and they spend 29% more on lobbying during their fraudulent periods than during nonfraudulent periods. The delay in detection leads to a greater distortion in resource allocation during fraudulent periods. It also allows managers to sell more of their shares.
Original languageEnglish
Pages (from-to)0022-1090
JournalJournal of Financial and Quantitative Analysis
Volume46
Issue number6
DOIs
Publication statusPublished - 2011

Corresponding author email

fyu@ceibs.edu

Keywords

  • corporate fraud
  • Corporate lobbying
  • corporate governance

Indexed by

  • FT
  • ABDC-A*
  • Scopus
  • SSCI

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