Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/268480 
Year of Publication: 
2023
Series/Report no.: 
New Working Paper Series No. 327
Publisher: 
University of Chicago Booth School of Business, Stigler Center for the Study of the Economy and the State, Chicago, IL
Abstract: 
We provide a lower-bound estimate of the undetected share of corporate fraud. To identify the hidden part of the "iceberg," we exploit Arthur Andersen's demise, which triggered added scrutiny on Arthur Andersen's former clients and thereby increased 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 10% of large publicly traded firms are committing securities fraud every year, with a 95% confidence interval of 7%-14%. Combining fraud pervasiveness with existing estimates of the costs of detected and undetected fraud, we estimate that corporate fraud destroys 1.6% of equity value each year, equal to $830 billion in 2021.
Subjects: 
Corporate governance
Corporate fraud
Detection likelihood
Cost-beneft analysis
Securities regulation
Arthur Andersen
JEL: 
G30
G34
K22
M40
Document Type: 
Working Paper

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