|
Ethics Disclosure and Likelihood of Fraudulent Financial Reporting
Obeua S Persons,
Rider University
ABSTRACT. This study examines ethics disclosure among firms which were investigated by the Securities Exchange Commission for fraudulent financial reporting before the Sarbanes-Oxley Act and the NYSE ethics rule became effective. The research question is whether investors can assess the fraud likelihood by reading publicly available reports for any uses of ethics in conducting business. The extent of ethics disclosure was measured by 18 aspects using a point system. Three major findings are: (1) only 12.6% of fraud firms and 15.3% of no-fraud firms made any ethics disclosure in the first year of fraud, (2) fraud firms tended to have lower extent of ethics disclosure than no-fraud firms, and (3) ethics disclosure was significantly related to the fraud likelihood when it was used in combination with other corporate governance variables. These findings provide an evidence supporting the requirement of the Sarbanes-Oxley Act and the NYSE that listed firms must disclose their code of ethics.
Full-Text is no longer available online. Please contact the author(s) for more information about this manuscript.
Back to Session Listing
|