The Local Spillover Effect of Corporate Accounting Misconduct: Evidence from City Crime Rates*
Eric R. Holzman, Brian P. Miller, Brian M. Williams
Contemporary Accounting Research · 2021 · Volume 38 · Issue 3
Abstract
This study documents a spillover effect of accounting fraud by showing that after the revelation of accounting misconduct, there is an increase in financially motivated neighborhood crime (robberies, thefts, etc.) in the cities where these misconduct firms are located. We find that more visible accounting frauds (e.g., greater media attention and larger stock price declines) are more strongly associated with a future increase in financially motivated neighborhood crime. We also find that the association between fraud revelation and increased future financially motivated crime is strongest when local job markets are shallower and where local income inequality is high, consistent with adverse shocks from fraud putting pressure on local communities. Combined, our study provides evidence that the societal ramifications of corporate accounting misconduct extend beyond adversely impacting a firm's capital providers and industry peers to negatively influence the daily life of the residents in the firm's local community.
Keywords
accounting misconduct, real effects, crime rate, corporate spillover, income inequality, accounting fraud, mauvaise conduite sur le plan comptable, effets réels, taux de criminalité, effet d’entraînement des entreprises, inégalité des revenus, fraude comptable
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