Financial scandals: A historical overview

The paper focuses on global fraud and financial scandals prior to Enron , highlighting the regulatory response to scandals and implications for accounting and financial reporting.

Author:

• Steven Toms, Business School, University of Leeds, Leeds, United Kingdom

Abstract

The incidence of fraud over the long run is investigated and related to significant financial scandals. Focusing on the UK, and US prior to Enron, and using a detailed dataset of significant events and news content, underpinned by analysis of specific watershed scandals, the paper highlights the regulatory response to scandals and the implications for accounting and financial reporting. The analysis reveals the incidence of fraud and financial scandal to be historically contingent and skewed towards certain sectors, particularly banking and finance, facilitated by complex group structures and international capital mobility, and mediated by managerial incentives and ownership concentration. Financial reporting and auditing can mitigate fraud opportunities in all sectors and simple businesses, and achieved some success up to the mid-1970s. Since then, the accountancy profession has been increasingly challenged by, and to some degree implicated in, the development of interconnected and international business networks, which, combined with wider financial deregulation, has led to a resurgence of fraud and financial scandal not previously experienced before 1880.