Journal of Legal, Ethical and Regulatory Issues (Print ISSN: 1544-0036; Online ISSN: 1544-0044)


Corporate Fraud: Undetectable Poison in the Thriving Economy

Author(s): Emelia A. Girau, Imbarine Bujang, Agnes Paulus Jidwin & Norhayati Mohamed

Corporate fraud occurs in situations in which conditions are right for it to happen. The question of whether corporate fraud happens during economic growth or economic downturn is yet to provide substantial empirical findings. This study attempts to provide empirical evidence on whether economic conditions influence firms' propensity to commit corporate fraud in Malaysia. The sample of fraudulent companies is the public listed companies charged by the Malaysian Securities Commission and were listed in the Securities Commission Enforcement Release (MSCER) from 1996 to 2016. Time-series regression analysis was used to analyze the association between economic conditions and corporate fraud. The empirical findings revealed that economic conditions play a significant role in influencing the manager’s decision to commit corporate fraud. This study may provide insights to business corporations on the need to update and review their internal control and monitoring mechanisms regularly regardless of the state of the economic conditions. Auditors may consider economic factors when evaluating corporate fraud risk and design proper investigation schemes that need to be implemented to detect corporate fraud. It will also shed some light on the investors and other users to have the knowledge and understand the importance of economic factors before or when making their financial investment decisions. It would also help policymakers to develop more effective guidelines and policies that focused on corporate fraud deterrence. Effective fraud prevention in business corporations will minimize fraud threats to public safety and will foster decent economic development in a nation.

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