The Cressey hypothesis (1953) and an investigation into the occurrence of corporate fraud: an empirical analysis conducted in Brazilian banking institutions

Michele Rílany Rodrigues Machado,Ivan Ricardo Gartner

doi:10.1590/1808-057x201803270

Michele Rílany Rodrigues Machado, Ivan Ricardo Gartner

Open Access

https://doi.org/10.1590/1808-057x201803270

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Abstract

ABSTRACT This article fills a technical-scientific gap that currently exists in the Brazilian literature on corporative fraud, by combining the theoretical framework of agency theory, of criminology, and of the economics of crime. In addition, it focuses on a sector that is usually excluded from analyses due to its specific characteristics and shows the application of multinomial logit panel data regression with random effects, which is rarely used in studies in the area of accounting. The aim of this study is to investigate the occurrence of corporative fraud, as well as cases of fraud in Brazilian banking institutions, by using detection variables related to the Cressey fraud triangle. Research into fraud and methods of detecting fraud has grown in management literature, especially after the occurrence of various corporative scandals in the 1990s. Although regulatory agencies have increased their investments in monitoring and control, fraud investigations and convictions are still common in the day-to-day administration of banks, as can be seen in the Brazilian Central Bank and the National Financial System Resource Council’s databases of punitive proceedings. We believe that this article will have a positive impact in the area of accounting sciences, since it involves corporative fraud in a multidisciplinary form and because it provides the incentive to use a quantitative tool that can help increase the development of similar studies in the area. This study tested the theory that the dimensions of the fraud triangle condition the occurrence of corporative fraud in Brazilian banking institutions. Thirty-two representative variables of corporative fraud were identified in the theoretical-empirical review, which were reduced to seven latent variables by the principal component analysis. Finally, the seven factors formed the independent variables in the multinomial logit models used in the hypothesis tests, which presented promising results.

Highlights

Michele Rílany Rodrigues Machado & Ivan Ricardo Gartner e number of studies on fraud and fraud detection methods has grown in management literature, especially since the occurrence of corporate scandals in the 1990s (Wang, Winton, & Yu, 2010). ese studies include those that investigate the probability of occurrence of accounting and corporate fraud, such as those by Beasley (1996), Brazel, Jones, and Zimbelman (2009), Crutcheley, Jensen and Marshall (2007), Erickson, Halon and Maydew (2006), Lou and Wang (2009), Troy, Smith, and Domino (2011), and Wang et al (2010)
Because of the importance of these institutions for the economic context, it is clear that the losses from a fraud in a large bank will be felt by the economy in general, since these institutions act as nancial intermediaries and providers of external capital for other economic activities. erefore, understanding and nding ways of preventing and detecting corporate fraud in banking institutions is crucial for society as a whole
Most of the Brazilian studies have di erent scopes from that of this paper, concentrating on analyzing red ags, whether via auditor perception or via the creation of new structures (Murcia & Borba, 2007; Murcia, Borba, & Schiehll, 2008), using data on international companies to calculate the probability of fraud (Wuerges & Borba, 2014) or mapping patterns of corporate fraud (Imoniana & Murcia, 2016). erefore, carrying out studies to calculate the probability of corporate fraud occurring in the Brazilian context is of academic relevance. In light of this theoretical gap and of the importance of the Cressey fraud triangle in the theoretical and empirical contexts, the general aim of this study is established, which is to investigate the occurrence of corporate fraud, as well as indications of fraud, in Brazilian banking institutions, by using detection variables from agency theory, criminology, and the economics of crime

Summary

INTRODUCTION

Michele Rílany Rodrigues Machado & Ivan Ricardo Gartner e number of studies on fraud and fraud detection methods has grown in management literature, especially since the occurrence of corporate scandals in the 1990s (Wang, Winton, & Yu, 2010). ese studies include those that investigate the probability of occurrence of accounting and corporate fraud, such as those by Beasley (1996), Brazel, Jones, and Zimbelman (2009), Crutcheley, Jensen and Marshall (2007), Erickson, Halon and Maydew (2006), Lou and Wang (2009), Troy, Smith, and Domino (2011), and Wang et al (2010). Cressey’s hypothesis (1953), which is known as the fraud triangle, considers three dimensions of fraudulent behavior: pressure, opportunity, and rationalization. Erefore, carrying out studies to calculate the probability of corporate fraud occurring in the Brazilian context is of academic relevance In light of this theoretical gap and of the importance of the Cressey fraud triangle in the theoretical and empirical contexts, the general aim of this study is established, which is to investigate the occurrence of corporate fraud, as well as indications of fraud, in Brazilian banking institutions, by using detection variables from agency theory, criminology, and the economics of crime. The Cressey hypothesis (1953) and an investigation into the occurrence of corporate fraud: an empirical analysis conducted in Brazilian banking institutions

Agency Theory

Corporate Fraud

Findings

EMPIRICAL ANALYSIS METHODOLOGY