Abstract
ObjectivesThe knowledge of the effects of white-collar crimes is incomplete. In the article, we operationalize white-collar crimes as bankruptcy frauds. Economic models maintain that interlinkages between firms may give ‘domino effects’: bankruptcy events could lead to ‘bankruptcy chains’ in which a bankruptcy spreads to other firms. Analogously, criminologists assert that social and economic networks can be a major source of fraud diffusion, with the potential to drive other firms bankrupt. Recent empirical results show that crimes may have detrimental and even asymmetric (nonlinear) effects on economic activity. We analyze the diffusion and the aggregate development of bankruptcy frauds in Sweden over nearly two hundred years, specifically focusing on the relationship between bankruptcy frauds and the bankruptcy volume. We also consider linkages between bankruptcy frauds, bankruptcies, and the macroeconomic cycle.MethodsWe use long, aggregate time series, collected from several different historical and contemporary sources. Applying the recently developed cointegrating nonlinear autoregressive distributed lag (NARDL) model, we investigate whether the bankruptcy volume reacts asymmetrically to increases and decreases in bankruptcy frauds, both in the short and the long run.ResultsBankruptcy frauds reveal a causal effect on bankruptcies, showing an asymmetric (nonlinear) diffusion effect from economic frauds to the bankruptcy volume. Increases in bankruptcy frauds have a positive and significant effect on the bankruptcy volume. However, decreases in bankruptcy frauds show no significant effect. No causal relationship between the macroeconomic cycle and bankruptcy frauds is found.ConclusionsOur data and research approach demonstrate how previously generated hypotheses in both criminology and economic research on the relationship between (economic) crimes, economic activity, and the diffusion of white-collar crime can be tested at an aggregate level.
Highlights
White-collar crimes often have extensive consequences for victims, stakeholders as well as society as a whole
Our data and research approach demonstrate how previously generated hypotheses in both criminology and economic research on the relationship between crimes, economic activity, and the diffusion of white-collar crime can be tested at an aggregate level
A substantial number of whitecollar crimes takes place within the small business sector (Croall 1989; Korsell 2015), and this is true in a historical perspective—for example, a majority of the people convicted for bankruptcy fraud in early twentieth century Sweden were small-scale entrepreneurs
Summary
White-collar crimes often have extensive consequences for victims, stakeholders as well as society as a whole. It is often problematic to define and measure these types of crimes or to quantify the effects (Friedrichs 2010). Bankruptcy fraud is one particular subform of white-collar crime, committed within the framework of a (formal) business activity. In Sweden, offenders have committed dishonesty or carelessness towards creditors, favoritism to (certain) creditors, or accounting fraud. An insolvent firm has exploited an economic opportunity in order to gain some form of financial or business advantage (Alalehto and Larsson 2009; Delaney 1992; Friedrichs 2010). A substantial number of whitecollar crimes takes place within the small business sector (Croall 1989; Korsell 2015), and this is true in a historical perspective—for example, a majority of the people convicted for bankruptcy fraud in early twentieth century Sweden were small-scale entrepreneurs
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