Finance Seminar with Mattias Nilsson, Leeds School of Business, University of Colorado
The Department of Finance is proud to announce the upcoming seminar with Mattias Nilsson, Leeds School of Business, University of Colorado.
Mattias Nilsson will present:
Information Production and the Duration of Accounting Fraud
Authors:
Jonathan Black, University of Colorado, Leeds School
Mattias Nilsson, University of Colorado, Leeds School
Roberto Pinheiro, University of Colorado, Leeds School
Maximiliano da Silva, University of Sao Paulo
Abstract:
In this paper, we develop and test a model that connects information production by auditors and analysts to the expected duration of accounting fraud. In particular, using a sample of AAERs issued by the SEC, we show that the likelihood of fraud detection is significantly greater in the quarter following the audited fiscal year-end reports. Furthermore, we show that the presence of explanatory language in the auditor report significantly strengthens the result, indicating that the content of the reports is important. On the other hand, the fact that the auditor belongs to a reputable Big N company does not seem to matter. In terms of analysts, we show that the presence of analysts that are industry specialists reduce the expected fraud duration, although there is a direct negative marginal effect of adding more specialists due to free riding or herding. Conversely, the addition of analysts that are non-specialists does not affect the length of the fraud. Finally, consistent with the predictions of our model, we find that managerial efforts to conceal the fraud lower the hazard rate of fraud detection. We show that frauds that start in the first fiscal quarter– the furthest from the auditing episode and therefore more likely to be premeditated – tend to be longer. Similarly, frauds that affect more areas of the financial statements – an indication of complexity and an attempt to avoid internal inconsistencies – as well as frauds by firms with higher accruals also tend to be longer.