Increasing firm value through detection and prevention of white-collar crime

Abstract

White-collar crime can cost a company from 1 percent to 6 percent of annual sales, yet little is known about the organizational conditions that can reduce this cost. Previous governance research has examined the link between block holders, boards of directors, or CEO compensation and fraud. In this study, these traditional measures of governance are found to have little impact. Instead, operational governance, including clarity of policies and procedures, formal cross-company communication, and performance-based pay for the board and for more employees, significantly reduces the likelihood of a crime commission. Copyright © 2003 John Wiley & Sons, Ltd.