INCREASING FIRM VALUE THROUGH DETECTION
Strategic Supervision Journal
Strat. Mgmt. T., 24: 587вЂ“614 (2003)
Posted online in Wiley InterScience (www.interscience.wiley.com). DOI: 10. 1002/smj. 330
ELEVATING FIRM VALUE THROUGH DETECTION
AND ELIMINATION OF WHITE-COLLAR CRIME
Carlson School of Management, University or college of Minnesota, Minneapolis, Minnesota, U. T. A.
White-collar crime can cost a company coming from 1 percent to six percent of annual sales, yet little is known about the company conditions that could reduce this kind of cost. Previous governance studies have examined the web link between obstruct holders, panels of company directors, or CEO compensation and fraud. Through this study, these traditional steps of governance are found to acquire little effects. Instead, operational governance, which include clarity of policies and procedures, formal crosscompany connection, and performance-based pay for the board and for more staff, significantly minimizes the likelihood of a crime commission. Copyright п›™ 2003 John Wiley & Sons, Ltd.
The monetary impact of fraud is usually immense. Quotes of the cost of white-collar offense to corporations in the United States range from $200 billion dollars (Touby, 1994) to $600 billion per year (Association of Certified Scam Examiners (ACFE), 2002). This is massively greater than street offense losses
of $3вЂ“4 billion dollars (Baucus and Baucus, 1997) and
total economic damage to victims of personal and
property offences of $15. 6 billion dollars (Bureau of Justice
Stats, 1999). Fraudulence can drastically impact the
financial functionality of a firm as it can cost you a
typical company between 1 percent and 6 percent of annual revenue (Hogsett and Radig, 1994; Touby, year 1994; ACFE, 2002). White-collar criminal offenses
alone triggers 30 percent of recent business failures
(Agro, 1978), without regard to the quality of the
firms' strategy or perhaps assets.
Keywords: fraud; criminal offense; governance; interior control
*Correspondence to: Karen Schnatterly, Carlson School of Management, College or university of Minnesota, 321 19th Avenue Southern region, Minneapolis, MN 55455, U. S. A.
Copyright п›™ 2003 Ruben Wiley & Sons, Ltd.
Fraud has brought down various apparently wellperforming firms. Enron, Sunbeam, Cendant, and Waste materials Management are some of the most recent
and spectacular good examples. Even before Enron's
collapse, the U. S. Securities and Exchange Commission payment was checking out more companies than ever pertaining to possible accounting fraud (Roland, 2001).
The cabability to prevent scam, or value loss through
fraud, has changed into a potential supply of competitive benefits and better financial overall performance for organizations in today's economic system.
This paper investigates if firms' governance systems affect the likelihood of whitecollar crime. Governance systems contain not only the board of directors as well as the CEO, although
also functional systems in the firm through
which management can impact the company. Components of these systems have been examined regarding their role in strategy process1
Method has to do with вЂhow' a firm increases a competitive position (Schendel, 1992), and relates to a comprehension of both how to develop these processes to вЂdevelop very good strategy, after which go on to formulate those procedures necessary to make use of the strategy to work the firm' (Schendel, 1992: 3).
Received 12 Oct 2002
Final revision received 13 March 2003
Electronic copy offered at: http://ssrn.com/abstract=1089599
(Marginson, 2002), but not with regards to their
influence on crime.
The investigation contains what may well constitute inability of governance as well as featuring some course as to what may possibly constitute even more
effective governance. Understanding or identifying
the variation in governance systems between organizations
with criminal offenses and those with no it provides perception
toward the reduction of white-collar criminal offenses in all
The governance differences between firms with
crime and people without it truly is investigated using a
sample of 114 businesses, composed of coordinated pairs...
References: Abrahamson E, Park C. 1994. Concealment of unfavorable organizational final results: an agency theory perspective. Senior high of Supervision Journal 37(5):
Agro D. 1978. White scruff of the neck crime: we all cannot afford that!
Government Accountancy firm Journal 28(Spring): 53вЂ“57.
Albrecht WS, Wernz GW, Williams T. 1995. Fraud:
Getting Light for the Dark Side of Business
Alexander C, Cohen MA. mil novecentos e noventa e seis. New proof of the
beginnings of corporate crime
Alexander C, Cohen MA. 99. Why carry out corporations
become criminals? Title, hidden actions and
Almaney A. mid 1970s. Communication as well as the systems theory of organization. Journal of Business Conversation 12(1): 35вЂ“43.
Anonymous. 1994. Ethics plans help reduce interior
Anthony REGISTERED NURSE. 1988. The Management Control Function.
Arndt M, Bigelow B. 2k. Presenting strength innovation in an institutional environment: hospitals' use
of impression management
Connection of Qualified Fraud Examiners. 2002. Fraud
Baucus MS, Baucus DA. 1997. Paying of the piper:
an empirical study of longer-term financial
Baucus MS, Near JP. 1991. May illegal corporate and business
behavior be predicted? A celebration history evaluation.
Beasley MS. 1996. An empirical examination of the connection
between the panel of director composition and
Beatty RP, Zajac ICKE. 1994. Bureaucratic incentives,
monitoring and risk bearing: research of executive
Bell TB, Knechel WR, Payne JL, Willingham JJ. 1998.
Bologna J. 80. Motivated climate prevents white-colored
Bowman EH. 1984. Articles analysis of annual information for
corporate and business strategy and risk
Boyd BK. year 1994. Board control and CEO compensation.
Boyd BK. 1995. CEO duality and company performance:
a contingency style
Bruns WJ Jr. 1968. Accounting data and decision-making: some behavioral hypotheses. Accounting
Review 43(3): 469вЂ“480.
Bureau of Proper rights Statistics web page. 1999. Countrywide Crime
Buss D. 1993. Ways to stop employee robbery. Nation's
Business 81(4): 36вЂ“37.
Coffey BALONEY, Fryxell GENERAL ELECTRIC. 1991. Institutional ownership
and dimensions of corporate cultural performance: an
Daboub AJ, Rasheed NODRIZA, Priem RL, Gray DA. 1995.
Silly RL, Macintosh NB. 1984. The nature and use
of formal control systems pertaining to management control
Strat. Mgmt. J., twenty four: 587вЂ“614 (2003)
Firm Benefit and White-Collar Crime
DeFond ML, Jiambalvo J. 1991. Incidence and circumstance of accounting errors. Accounting Review 66(3):
Ettore M. 1995. An ounce of prevention. Managing
Review 84(4): 6.
Celebridad EF. 80. Agency theory and the theory of the firm.
Fama EF, Jensen MC. 1983. Separation of possession
Fan X, Chen M. 2000. Released studies of interrater
trustworthiness often overestimate reliability: computing
Fellner BALONEY, Mitchell LL. 1995. Conversation: an
essential element in inside control
Finkelstein S, D'Aveni RA. 1994. CEO mix and match as a
bitter sword: how boards of directors equilibrium