Prelims

Half Title Page

Corporate Fraud Exposed

Endorsements

Praise for Corporate Fraud Exposed

‘This book presents important insights into the causes and consequences of corporate fraud. The chapters encompass many useful empirical observations as well as key case studies. It is an important resource for academics, practitioners, and policymakers alike.’

− Douglas Cumming, DeSantis Distinguished Professor, Florida Atlantic University

‘Corporate Fraud Exposed offers valuable insights on a wide cross section of timely, cutting-edge, fraud-related topics from essential background including causes and consequences, to detection and prevention, while highlighting case studies and areas for future research. From industry professionals to interested investors, readers will find this comprehensive work, from a mix of talented academics and practitioners led by highly accomplished co-editors, both intriguing and informative. As the editors point out, fighting fraud remains a never-ending battle with fintech and data analytics representing the latest battlefronts.’

− Greg Filbeck, CFA, FRM, CAIA, CIPM, PRM, Samuel P. Black III Professor of Finance and Risk Management, Penn State Behrend

‘This book is a unique one-stop-shop for understanding corporate fraud that provides a breadth of perspectives from a variety of academic disciplines. Summarizing the latest research and grounded in empirical data, the book provides valuable insights for students, academics, policymakers, investors, and practitioners alike.’

− William J. Mayew, Professor of Accounting, Duke University, Fuqua School of Business

‘This book provides a timely reminder of the inevitability of fraud, the costly societal consequences, and what can and can’t be done to detect and mitigate it. Readers will appreciate the multi-disciplinary and global perspective that brings together research on well-known frauds of the past with frauds of the future enabled by technology (e.g. ‘crowdfooling’), showcasing evolving opportunities to address, from transparency, to whistleblowing to analytics.’

− Alexander Dyck, Professor of Finance and Economic Analysis and Policy, Rotman School of Management, University of Toronto

‘This book provides a wide-ranging coverage of the costly and growing epidemic afflicting the corporate and financial worlds: Fraud. An exceptional and coherent collection of well-researched chapters, Corporate Fraud Exposed reveals the pervasiveness of fraud and its dreadful impact on corporations and their stakeholders. It also offers an in-depth analysis of how fraud is committed and what can be done to prevent its occurrence in the first place. Given its holistic and forward-looking perspective, this book is valuable to academics, students, professionals as well as policy makers.’

− Omrane Guedhami, C. Russell Hill Professor of Economics, Moore School of Business, University of South Carolina

‘This is a terrific book! It not only demystifies and explains the phenomenon of corporate fraud but also exposes its complex and multifaceted nature. It covers cutting edge topics (e.g., cyber-fraud and ‘crowd-fooling’) on corporate fraud and uses detailed illustrations of major corporate scandals to demonstrate the global nature of fraud. The book’s clarity and comprehensive coverage of fraud make it a valuable reference for practitioners, policy makers, academics and graduate students alike.’

− Kose John, Charles William Gerstenberg Professorship in Banking and Finance. Stern School of Business, New York University

Title Page

Corporate Fraud Exposed

A Comprehensive and Holistic Approach

Edited by

H. Kent Baker

American University, Kogod School of Business, USA

Lynnette Purda

Queen's University, Smith School of Business, Canada

and

Samir Saadi

University of Ottawa, Telfer School of Management, Canada

United Kingdom – North America – Japan India – Malaysia – China

Copyright Page

Emerald Publishing Limited

Howard House, Wagon Lane, Bingley BD16 1WA, UK

First edition 2020

Copyright © 2020 Emerald Publishing Limited

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British Library Cataloguing in Publication Data

A catalogue record for this book is available from the British Library

ISBN: 978-1-78973-418-8 (Print)

ISBN: 978-1-78973-417-1 (Online)

ISBN: 978-1-78973-419-5 (Epub)

About the Contributors

Ali C. Akyol is an Associate Professor of Finance at the Telfer School of Management, University of Ottawa, and a Senior Lecturer in Finance at the University of Melbourne. His research focuses on governance-related regulations, the board of directors, firm disclosure, and financial misconduct. His research has been published in such journals as the Journal of Financial Economics and the Journal of Financial and Quantitative Analysis. Professor Akyol holds a PhD in finance from the University of Alabama.

Chiraz Ben Ali is an Associate Professor of Accounting at John Molson School of Business of Concordia University. Before joining Concordia University, she was an Associate Professor of Accounting at IPAG Business School and also worked as a management controller at Société Générale bank. Her research focuses on corporate governance, especially auditing and corporate governance mechanisms and has been published in the European Accounting Review, Management International, and Comptabilité Control Audit. She received an MSc in accounting and a PhD in business administration from the University Paris Dauphine.

Haifa Amairi is a Visiting Scholar at the Telfer School of Management, University of Ottawa. Her research interests include corporate governance, product market competition, and executive compensation. She received a best-paper award and prestigious scholarships from the American Finance Association among others. Along with several chapters in refereed books, she has published in Financial Research Letters. She is a member of the Risk Management and Research in Accounting and Finance of the Manouba University where she is currently pursuing a PhD in finance.

Walid Ben Amar is a Professor at the Telfer School of Management, University of Ottawa. His research interests include corporate governance, ownership structures, mergers and acquisitions, and corporate disclosure strategies. Professor Ben Amar has published in the Journal of Business Finance & Accounting, Journal of Business Ethics, British Journal of Management, Business Strategy and the Environment, and Comptabilité-Contrôle-Audit. He has a PhD in business administration from HEC Montréal.

Anita Indira Anand is a Professor of Law and holds the J. R. Kimber Chair in Investor Protection and Corporate Governance at the University of Toronto and is cross-appointed to the Rotman School of Management and the School of Public Policy and Governance. She holds BA degrees from Queen's University and the University of Oxford, an LLB from Dalhousie University and LLM from the University of Toronto. She is a member of the Bar of Ontario.

Kirsten L. Anderson, CPA, is a Teaching Professor at the McDonough School of Business Georgetown University. She previously served as a Financial Economist at the Securities and Exchange Commission and an Assistant Professor of Accounting at Syracuse University. Before working in academia, she was as a financial analyst for Campbell Soup Company. Professor Anderson received a BS in accounting from the University of Delaware and a PhD in accounting from The Ohio State University.

Paul Andon is a Professor of Accounting at UNSW Sydney and a Fellow of Chartered Accountants Australia and New Zealand. Professor Andon's research focuses on issues in fraud, new assurance services, and professional governance. He has published his research in leading scholarly journals in the discipline. Professor Andon received his PhD from UNSW Sydney.

H. Kent Baker, CFA, CMA, is University Professor of Finance in the Kogod School of Business at American University. Professor Baker is an award-winning author/editor of 37 books including Debt Markets and Investments (2019), Investment Traps Exposed: Navigating Investor Mistakes and Behavioral Biases (2017), Financial Behavior: Players, Services, Products, and Markets (2017); Investor Behavior: The Psychology of Financial Planning and Investing (2014), and Survey Research in Corporate Finance (2010). He is also the editor of two book series: Financial Markets and Investments (Oxford University Press) and the H. Kent Baker Investments Series (Emerald Publishing). As one of the most prolific finance academics, he has published more than 190 refereed academic journal articles and 125 practitioner-oriented articles appearing in such outlets as the Journal of Finance, Journal of Financial and Quantitative Analysis, Financial Management, Journal of Corporate Finance, Financial Analysts Journal, Journal of Portfolio Management, and Harvard Business Review. He has consulting and training experience with more than 100 organizations and has conducted more than 800 training programs in North America and Europe. He is the past president of the Southern Finance Association and its 2019 Distinguished Scholar. Professor Baker holds a BSBA from Georgetown University; an MEd, MBA, and DBA from the University of Maryland; and an MA, MS, and two PhDs from American University.

Matthew Boland is an Assistant Professor of Accounting in the Sobey School of Business at Saint Mary's University. Previously, he was an Assistant Professor of Finance in the Lucas School of Business at San Jose State University. Professor Boland received a PhD in management from Queen's University.

Ellie Chapple is Professor of Accountancy at the QUT Business School, Queensland University of Technology, Brisbane, Australia, and Solicitor admitted to the Supreme Court of Queensland, Australia. She is the research leader for the Forensic Accounting and the Accounting for Social Change research groups in the School of Accountancy. Her research focuses on corporate governance and nonfinancial disclosures by capital markets firms and includes critiquing securities regulation law and policy. Professor Chapple holds an LLB from the Queensland University of Technology, an LLM from the University of Queensland, and received an SJD from the Queensland University of Technology.

Iva Charlopova is a Senior Financial Accountant in the insurance industry in Sydney. She holds an undergraduate degree in international business and accounting from the Schulich School of Business, York University, and is a Chartered Professional Accountant of Canada.

Boushra El Haj Hassan is a PhD candidate at the Telfer School of Management, University of Ottawa. She received several prestigious scholarships such as the Joseph-Armand Bombardier Canada Graduate Scholarship from the Social Sciences and Humanities Research Council of Canada (SSHRC). Her research interest includes executive compensation, corporate governance, and corporate innovation. Her work appeared in book chapters as well as papers in peer-reviewed journals such as Emerging Market Review and Finance Research Letters.

Casey D. Evans, CPA, CFE, is a Senior Professorial Lecturer at American University and serves as the Associate Dean of Undergraduate Programs and Student Services at Kogod School of Business. She joined the faculty with extensive industry experience handling corporate fraud investigations and federal enforcement actions. Professor Evans has a BS and MS in Accounting from American University.

Clinton Free is a Professor of Accounting at the University of Sydney. He served on faculties at Oxford University, Queen's University, and UNSW Sydney. Professor Free's research focuses on fraud and corporate governance. He holds Commerce and Law degrees from UNSW and a doctorate from Oxford University, where he was a Rhodes Scholar.

James K. Hayes is as an Adjunct Professor in the business programs at Chatham University. He has held various strategic planning and enterprise development positions in such organizations as Wabtec, Federal Reserve Bank of Richmond, Eaton Corporation, Tyco, Motorola, Ameritech (now part of ATT), and Bankers Trust (now part of Deutsche Bank). He received a BSFS in international economics from Georgetown University, an MPA in economics and policy from Princeton University, an MBA in finance and accounting from the University of Chicago, and a DM from Case Western Reserve University.

Tashfeen Hussain is an Assistant Professor of Finance at the Bissett School of Business, Mount Royal University, Canada. His research interests include firms' interactions with debt markets, creditor monitoring, corporate fraud, and emerging issues such as the implications of fake news and peer to peer lending. He has presented his research at several international conferences. Professor Hussain received a PhD in finance from Queen's University.

Philip R. Jones, EIT, is a Senior Account Executive at Emerson Automation Solutions providing account management and leading strategic displacement activities across the central United States. He previously was a lead startup and field engineer focused on power retrofit initiatives and repowering large generation facilities. Mr Jones received a BS in mechanical engineering from Purdue University and an MBA from Syracuse University.

Halil Kiymaz, CFA, is Bank of America Professor of Finance at Crummer Graduate School of Business, Rollins College. He has published five books and more than 80 articles in scholarly and practitioner journals. His research appears in such journals as the Journal of Banking and Finance, Financial Review, Global Finance Journal, Journal of Applied Finance, Journal of Economics and Finance, Review of Financial Economics, and Quarterly Journal of Business and Economics. He is the recipient of several research awards including the McGraw-Hill Irwin Best Paper Award and Outstanding Research Awards at the Global Conference on Business and Finance. He also serves on the editorial board of several journals. Professor Kiymaz is the former president of the Academy of Financial Services and finance editor of International Journal of Emerging Markets. He has taught as a visiting professor at East Chinese University of Science and Technology, Shanghai, China, and Copenhagen Business School in Denmark. He received an MBA, MA, and PhD from the University of New Orleans.

Julien Le Maux is a Professor at HEC Montréal. His research focuses on corporate governance, annual report readability, and corporate finance. Professor Le Maux has published in the Journal of Business Finance and Accounting, European Financial Management, and La revue du financier. In 2014, he received the Prize of the Minister of Higher Education, Research and Science – Mention in the category Volumes (university education). Professor Le Maux holds a PhD from University of Paris 1, Panthéon-Sorbonne.

Chen Liu is an Associate Professor of Finance and Associate MBA Director at Trinity Western University. Professor Liu’s research focuses on empirical corporate finance, entrepreneurial finance, and PE & VC. Her research appears in such journals as Small Business Economics and Financial Management. She has also published numerous book chapters. Professor Liu holds a PhD in Finance from the Smith School of Business at Queen’s University.

Yan Luo, CPA, is an Associate Professor and Goddard Family Endowed Faculty Fellow at the Charles W. Lamden School of Accountancy at San Diego State University. Her research interests include corporate governance, corporate disclosure, auditing, and data analytics. Her research has been published in Corporate Governance: An International Review, Journal of Information Systems, Journal of Accounting Literature, Review of Quantitative Finance and Accounting, Research in Accounting Regulation, International Journal of Disclosure and Governance, Asian Review of Accounting, and Review of Accounting and Finance. She received a PhD in Accounting from Queen's University, Canada.

Janelle Mann is an Associate Professor at the Department of Economics, University of Manitoba. Her research is funded through the Social Sciences and Humanities Research Council of Canada (SSHRC) and the Dr Paul H. T. Thorlakson Foundation Fund and Mitacs. Professor Mann's research has been published in the Canadian Journal of Economics, Empirical Economics, Energy Economics, Environmental and Resource Economics, and Journal of Economics and Econometrics. She holds a PhD in business economics from Smith School of Business, Queen's University.

Sondes Mbarek is an Associate Professor of Corporate Finance and Accounting at Institut Mines-Telecom Business School and Research Affiliate to the Laboratory for Innovation, Technologies, Economy and Management (LITEM). Her research interests lie within the fields of financial innovation, crowdfunding, corporate finance, corporate governance, entrepreneurship, and corporate social responsibility. She holds a PhD in corporate finance from University Paris Dauphine.

Joseph Monts, CSCP, CPIM, is a supply chain and operations professional at Google. He previously held various roles in consumer electronic start-up organizations with a focus on implementing supply chain, manufacturing, logistics, and distributions operations to bring those organizations to market. Mr Monts received a BS degree in global supply chain and finance from the University of South Carolina and an MBA from Syracuse University.

Carl Pacini, CPA, CFF, is a Professor of Accounting at the Kate Tiedemann College of Business, University of South Florida at St. Petersburg. He has also been an Adjunct Instructor of Forensic Accounting for Florida Atlantic University for 15 years. Professor Pacini's research and professional interests include auditor liability, forensic accounting, and accounting and financial services regulation. He received a PhD in Accounting from the Florida State University and a JD from the University of Notre Dame.

Michael Pakaluk is Ordinary Professor of Ethics and Social Philosophy at the Busch School of Business at The Catholic University of America. He is the author of many books and articles on classical ethical theory, especially Aristotelian ethics and the philosophy of friendship. His groundbreaking work in accounting ethics approaches the subject through the viewpoint of virtue ethics. Professor Pakaluk earned an AB in Philosophy from Harvard College, an MLitt in Philosophy from the University of Edinburgh, and a PhD in Philosophy from Harvard University.

Steven Petra, CPA, is a Professor of Accounting in the Frank G. Zarb School of Business at Hofstra University. His research interests include capital markets and taxation. His professional experience includes positions as a senior tax specialist at Deloitte, Haskins & Sells, and as a state tax accountant for Combustion Engineering, Inc. He is a consultant to the investment banking industry in New York City. Professor Petra has published in Corporate Governance, Economics of Governance, Managerial Finance, The Journal of Accountancy, The CPA Journal, The Practical Accountant, Taxes – The Tax Magazine, The Tax Adviser, and Practical Tax Strategies. He holds a BS in accounting, an M.S. in taxation from Long Island University, CW Post campus, and a PhD in accounting from Rutgers University.

Lynnette Purda, CFA, is Professor and an RBC Fellow of Finance at the Smith School of Business, Queen's University. Before joining academia, she worked in investment banking as part of a Calgary-based oil and gas team. Her interdisciplinary research interests combine aspects of finance with international business, law, and accounting. Professor Purda's research covers topics in corporate governance including fraud, disclosure, and board composition. She has published in journals covering several disciplines including Contemporary Accounting Research, Journal of International Business Studies, American Law and Economics Review, and Journal of Law, Finance, and Accounting. Her research has been profiled in the press with articles featured in the Globe and Mail newspaper and Report on Business Magazine. The implications of her research for policymakers and practitioners have resulted in speaking engagements at the Bank of Canada, Accounting Standards Oversight Council of Canada, and Canadian Investment Review Risk Management Conference. She is a past President of the Northern Finance Association. Professor Purda received a PhD from the Rotman School of Management, University of Toronto.

Samir Saadi is an Associate Professor and Ian Telfer Fellow in Behavioral Finance at the Telfer School of Management, University of Ottawa. He is also an Affiliate Research Fellow at IPAG Business School. Before his current appointment, he was a Visiting Scholar at leading research-intensive institutions such as the Stern School of Business of New York University and INSEAD (France). His research interests include corporate governance, business ethics, and behavioral finance. He held several external grants from the Social Sciences and Humanities Research Council of Canada (SSHRC) among others. His current research jointly with Lynnette Purda and funded by SSHRC probes the incentives and obligations of commercial banks to identify financial misrepresentation by their clients and explores the role of both individual banker and institutional relationships in arising suspicions of fraud. Besides publishing 12 book chapters, Professor Saadi has published more than 40 articles in refereed journals such as Contemporary Accounting Research, Financial Management, Journal of Corporate Finance, Journal of Banking and Finance, and Journal of Business Ethics. He is the founder and lead organizer of the Telfer Annual Conference in Accounting and Finance. Professor Saadi has served as a consultant for more than dozen organizations in the government and private sectors as well as for nonprofit entities. He is involved in CFA training programs in Europe and North Africa. He has been interviewed numerous times in live radio programs and newspapers. He has also served as an expert witness before the Senate of Canada. Professor Saadi holds a PhD in finance from the Smith School of Business at Queen's University.

Sayan Sarkar is an Assistant Professor in Accounting at the University of Mary Washington. His current research interests include earnings management, corporate governance, corporate fraud, and ethics. His work appears in journals such as Managerial Finance, Global Finance Journal, Advances in Accounting, and Journal of Behavioral and Experimental Finance. He has presented his work at various conferences including the Financial Management Association, Midwest Finance Association, Eastern Finance Association, and American Accounting Association. Professor Sarkar received his PhD from the University of Texas at El Paso.

Yun Shen is a PhD candidate at the University of South Australia, Adelaide, Australia. Her research focuses on CEO characteristics and their impact on firm performance and innovations. She holds a BEc from the Shanxi Agricultural University, China, and a MMgt from the University of Waikato, New Zealand.

Nadia Smaili is a Professor of Accounting at the School of Management Science, University of Quebec corporate. Professor Smaili's research focuses on financial statement fraud, whistleblowing, and governance. She has published in the Journal of Business Ethics, Journal of Management and Governance, Comptabilité-Contrôle-Audit, and Journal of Applied Business Research. Professor Smaili holds a PhD in Business Administration from HEC Montreal.

Andrew C. Spieler, CFA, CAIA, FRM, is the Robert F. Dall Distinguished Professor of Business and a Professor of Finance in the Frank G. Zarb School of Business at Hofstra University. Dr Spieler is the founder of Advanced Quantitative Consulting and also serves as Co-Director of the annual real estate conference sponsored by the Wilbur F. Breslin Center for Real Estate Studies. Professor Spieler has published in Real Estate Economics, Journal of Real Estate Finance and Economics, Journal of Real Estate Portfolio Management, Global Finance Journal, Journal of Applied Finance, and other journals. He received undergraduate degrees in math and economics from Binghamton University (SUNY), an MS in finance from Indiana University, and an MBA and PhD from Binghamton University (SUNY).

Nicole Forbes Stowell is an Instructor of Business Law at the Kate Tiedemann College of Business, University of South Florida at St. Petersburg. Her research interests include fraud and online teaching methods and development. Professor Stowell's work has been published in the Journal of the Academy of Business Education, Journal of Forensic & Investigative Accounting, and Drake Law Review, among others. She received a JD from Stetson University College of Law and an MBA from Stetson University.

Donia Trabelsi is an Associate Professor of Finance at Institut Mines-Telecom Business School and Research Affiliate to the Laboratory for Innovation, Technologies, Economy and Management (LITEM). Her research fields cover aspects of both financial markets and corporate finance with a special focus on venture capital/private equity, initial public offerings, crowdfunding, and the funding of innovation. She holds a PhD in finance from the University of Paris 1 Panthéon – Sorbonne.

Kathleen Walsh is a Professor of Finance at the University of Technology, Sydney, Australia. Her research focuses on capital market innovations and the impact of global markets on firm decisions. She held prior academic positions at the Australian National University, University of Sydney, and the University of New South Wales (UNSW) and also has industry experience in insurance and financial planning. Professor Walsh holds a PhD in finance from the Australian Graduate School of Management UNSW.

Robert A. Warren, CPA, is a Research Associate at the Busch School of Business at The Catholic University of America. Dr Warren spent 25 years with the Internal Revenue Service investigating complex schemes involving tax fraud, money laundering, currency structuring, and related financial crimes. He received numerous awards during his career including three US Department of Justice Awards for Public Service. Dr Warren is a graduate of the Special Agent Basic Training Program at the Federal Law Enforcement Training Center (FLETC) and earned both a BS in accounting and an MBA from the University of Maryland at College Park, and a DM from Case Western Reserve University.

Serena Shuo Wu is an Associate Professor of Accounting at Trinity Western University. Before her career at Trinity, she was an Accounting Professor at Smith School of Business, Queen's University. Professor Wu's research focuses on corporate governance, executive compensation, the role of executive lawyers, and the impact of regulatory enforcement on firm decisions. She has published in The Accounting Review, Journal of Law and Economics, Corporate Governance: An International Review, and Asian Review of Accounting. Professor Wu received a PhD in accounting from the University of British Columbia.

S. David Young, CPA, CFA, is Professor of Accounting and Control at INSEAD, where he has been since 1989. He has published in a wide range of academic and professional journals, including recent articles in Harvard Business Review, MIT Sloan Review of Management, and the Journal of Applied Corporate Finance. Professor Young is the author or coauthor of books on accounting, finance, and economics. He has also served as an advisor to several European, Asian, and North American companies – mainly on the topics of value-based management and financial statement analysis. He holds a PhD in Business Administration from the University of Virginia.

Linying Zhou is an Assistant Professor at California State University San Marcos, where she teaches financial accounting. Her research interests include financial reporting, corporate disclosure, executive compensation, and corporate governance. Professor Zhou has published on academic journals such as Journal of Business Ethics, Review of Quantitative Finance and Accounting, Asian Review of Accounting, and Review of Accounting and Finance. She received her PhD in accounting from the University of Texas at Arlington.

Acknowledgments

To write is human, to edit is divine.

–Stephen King

Bringing Corporate Fraud Exposed: A Comprehensive and Holistic Approach from the idea stage to a published book involved many people. We thank the chapter authors who devoted their time to writing and revising their chapters. Similar to a choir that contains many voices, this book has many contributing authors with their separate voices. A goal of both a choir and this book is to have the many voices sing together harmoniously. Our role as editors was to ensure a seamless flow when moving from chapter to chapter. Hence, this book is collectively much more than a compilation of chapters from an array of different authors. We also appreciate the professionalism of everyone at Emerald Publishing, especially Charlotte Maiorana (Senior Editor) and Charlie Wilson (Assistant Editor). We also owe a debt of gratitude to our respective institutions – the Kogod School of Business at American University, Smith School of Business at Queen's University, and Telfer School of Management at University of Ottawa. Finally, we thank our families for their support and understanding: Linda and Rory Baker; Evan and Ella Heeler; Lamia Chourou; as well as Omar and Sarah Saadi.