Paper How Pervasive is Corporate Fraud?
We provide an estimate of the undetected share of corporate fraud. To identify the hidden part of the ‘iceberg,’ we exploit Arthur Andersen’s demise that triggered added scrutiny on AA’s former clients, thereby increasing the detection likelihood of preexisting frauds. Our evidence suggests that in normal times only one third of corporate frauds are detected. We estimate that on average 11% of large publicly-traded firms are committing securities fraud every year. Combining this figure with existing estimates of the costs of detected and undetected fraud, we estimate that corporate fraud destroys 1.7% of equity value each year, equal to $744bn in 2020.
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