Fraudulent Financial Reporting and Technological Capability in the Information Technology Sector: A Resource-Based Perspective

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1 Citation (Scopus)

Abstract

Motivated by the disproportionately high incidence of fraudulent financial reporting in the IT sector where technological capability is a major source of competitive advantage, this study investigates the possible relationship between technological capability and fraud probability in the IT sector. Technological capability is measured by a firm’s technical efficiency relative to peers in transforming cumulative R&D resources into innovative output, which is a source of competitive advantage, according to the resource-based view (RBV) of the firm. Technical efficiency is estimated via data envelopment analysis. A sample of fraud firms taken from Accounting and Auditing Enforcement Releases is matched with control samples of non-fraud firms. Consistent with the RBV, technological capability is found to have a negative and economically significant effect on fraud probability. Moreover, fraud probability is insignificantly associated with the scale efficiency of innovative activities, as investment in R&D resources per se is not a source of sustainable competitive advantage.
Original languageEnglish
Pages (from-to)1-13
Number of pages13
JournalJournal of Business Ethics
DOIs
Publication statusAccepted/In press - 1 Jul 2017

Keywords

  • Fraudulent financial reporting
  • Information technology sector
  • Resource-based view
  • Technological capability

ASJC Scopus subject areas

  • Business and International Management
  • Business, Management and Accounting(all)
  • Arts and Humanities (miscellaneous)
  • Economics and Econometrics
  • Law

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