The effects of accountability, governance capital, and legal origin on reported frauds
Abstract
An institutional perspective is employed to illuminate the complexity of frauds in various diverse economies, in order to enhance the efficacy of previous accounting concepts. In this study, the effects of the legal, regulatory and human framework of the strength of auditing and reporting standards, and the governance capital related to global sustainable competitiveness and economic growth, etc. are analysed by linear regression (OLS) methods. Moreover, the role of other indicators i.e. financial freedom, the extent of director liability and legal origin, are interrelated with the number of fraud cases. From the results, it appears that an increased level of governance capital, financial freedom from government pressure, strengthened transparency and more protected minority investors through liable directors might increase the number of reported fraud cases in the countries and years examined. The existence of legal origin also seemed to be an appropriate proxy for an improved understanding of fraud characteristics. This evidence suggests it is worth investigating in depth the nature of financial crimes across countries for a better understanding of this phenomenon. In this way, these findings might have sufficient potential in the case of adequate policy implications within a less litigious business environment to resolve the undesirable consequences of impending financial downturns, and to achieve sustainable competitiveness and economic development.
Keyword : sustainable governance capital, private institutions, legal origin, fraud, cross-country analysis, accountability
How to Cite
Máté, D., Sadaf, R., Oláh, J., Popp, J., & Szűcs, E. (2019). The effects of accountability, governance capital, and legal origin on reported frauds. Technological and Economic Development of Economy, 25(6), 1213-1231. https://doi.org/10.3846/tede.2019.10717
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Fishbein, M., & Ajzen, I. (1975). Belief, attitude, intention, and behaviour: an introduction to theory and research. Boston: Addison-Wesley Publishing Co, Inc.
Free, C. (2012). Ronald berger, white-collar crime: the abuse of corporate and government power. Australian & New Zealand Journal of Criminology, 45(1), 144-147. https://doi.org/10.1177/0004865811432819b
Free, C. (2015). Looking through the fraud triangle: a review and call for new directions. Meditari Accountancy Research, 23(2), 175-196. https://doi.org/10.1108/MEDAR-02-2015-0009
Friedman, M., & Friedman, R. (1980). Free to choose: a personal statement (Vol. 1990). New York: Harcourt Brace Jovanovich. https://doi.org/10.1017/CBO9781107415324.004
Furlan, Š., Vasilecas, O., & Bajec, M. (2011). Method for selection of motor insurance fraud management system components based on business performance. Technological and Economic Development of Economy, 17(3), 535-561. https://doi.org/10.3846/20294913.2011.602440
Gillett, P. R., & Uddin, N. (2005). CFO intentions of fraudulent financial reporting. Auditing A Journal of Practice & Theory, 24(1), 55-75. https://doi.org/10.2308/aud.2005.24.1.55
Hayek, F. (1960). The constitution of liberty: the definitive edition. University of Chicago Press.
Hopkins, M. (2003). The planetary bargain: corporate social responsibility matters. Earthscan Publications.
Hronsky, J. J. F., & Houghton, K. A. (2001). The meaning of a defined accounting concept: regulatory changes and the effect on auditor decision making. Accounting, Organizations and Society, 26(2), 123-139. https://doi.org/10.1016/S0361-3682(00)00020-9
Kimbro, M. B. (2002). A cross-country empirical investigation of corruption and its relationship to economic, cultural, and monitoring institutions: an examination of the role of accounting and financial statements quality. Journal of Accounting, Auditing & Finance, 17(4), 325-350. https://doi.org/10.1177/0148558X0201700403
Kliestikova, J., Misankova, M., & Kliestik, T. (2017). Bankruptcy in Slovakia: international comparison of the creditor’s position. Oeconomia Copernicana, 8(2), 221-237. https://doi.org/10.24136/oc.v8i2.14
Korzh, N., Mostenska, T., & Bilan, Y. (2017). Resource-based view in managing financial component of corporate capital. Polish Journal of Management Studies, 16(2), 133-146. https://doi.org/10.17512/pjms.2017.16.2.12
La Porta, R., Lopez de Silanes, F., Shleifer, A., & Vishny, R. W. (2000). Investor protection and corporate governance. Journal of Financial Economics, 58, 3-27. https://doi.org/10.2139/ssrn.183908
Lokanan, M. E. (2015). Challenges to the fraud triangle: questions on its usefulness. Accounting Forum, 39(3), 201-224. https://doi.org/10.1016/j.accfor.2015.05.002
Long, J. S., & Ervin, L. H. (2000). Using heteroscedasticity consistent standard errors in the linear regression model. The American Statistician, 54(3), 217-224. https://doi.org/10.1080/00031305.2000.10474549
Mailley, G. M. J. (2015). A tale of two triangles: comparing the Fraud Triangle with criminology’s Crime Triangle. Accounting Research Journal, 28(1), 45-58. https://doi.org/10.1108/ARJ-10-2014-0092
Malagueno, R., Albrecht, C., Ainge, C., & Stephens, N. (2010). Accounting and corruption: a crosscountry analysis. Journal of Money Laundering Control, 13(4), 372-393. https://doi.org/10.1108/MRR-09-2015-0216
Malíková, O., & Brabec, Z. (2012). The influence of a different accounting system on informative value of selected financial ratios. Technological and Economic Development of Economy, 18(1), 149-163. https://doi.org/10.3846/20294913.2012.661193
Messner, S. F., & Rosenfeld, R. (2013). Crime and the American dream. Wadsworth Cengage Learning.
Meyer, D. F., & Meyer, N. (2017). Management of Small and Medium Enterprise (SME) development: an analysis of stumbling blocks in a developing region. Polish Journal of Management Studies, 16(1), 127-141. https://doi.org/10.17512/pjms.2017.16.1.11
Miller, T., & Kim, A. B. (2014). Defining economic freedom. In 2014 Index of Economic Freedom (pp. 79-86). Heritage Foundation. Retrieved from http://www.heritage.org/index/pdf/2014/book/index_2014.pdf
Morales, J., Gendron, Y., & Guénin-Paracini, H. (2014). The construction of the risky individual and vigilant organization: a genealogy of the fraud triangle. Accounting, Organizations and Society, 39(3), 170-194. https://doi.org/10.1016/j.aos.2014.01.006
Nobes, C. W. (1983). A judgemental international classification of financial reporting practises. Journal of Business Finance & Accounting, 10(1), 1-19. https://doi.org/10.1111/j.1468-5957.1983.tb00409.x
North, D. C. (1994). Economic performance through time. The American Economic Review, 84(3), 359368. https://doi.org/10.2307/2118057
Povel, P., Singh, R., & Winton, A. (2007). Booms, busts, and fraud. The Review of Financial Studies, 20(14), 1219-1254. https://doi.org/10.1093/revfin/hhm012
Ramamoorti, S. (2009). Bringing freud to fraud: understanding the state-of-mind of the C-level suite/ white collar offender through “A-B-C” analysis. Journal of Forensic & Investigative Accounting, 6(1), 1-35.
Rudewicz, F. (2011). The fraud diamond: use of investigative due diligence to identify the “Capability Element of Fraud”. CTTMA Newsletter, IV(1), 1-13.
Running, S. W. (2014). The Global Sustainable competitiveness index 2014. Methodology – SolAbility (Vol. 1). Retrieved from http://solability.com/the-global-sustainable-competitiveness-index/methodology
Sadaf, R., Oláh, J., Popp, J., & Máté, D. (2018). An investigation of the influence of the worldwide governance and competitiveness on accounting fraud cases: a cross-country perspective. Sustainability, 10(3), 1-11. https://doi.org/10.3390/su10030588
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