Banking

How Much are Nonexistent Earnings Worth?: Throwing Away Cash To Report False Earnings

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Executive Summary

How much will firms spend to perpetuate accounting fraud? New research indicates that some firms are willing to burn through their cash to inflate their financial statements. Today, accounting fraud remains a topic of concern for businesses, investors, and the government. However, coverage of recent massive accounting frauds in the financial press has largely ignored the tax consequences of the earnings overstatements. Merle Erickson, an associate professor at the University of Chicago Graduate School of Business, along with Michelle Hanlon of the University of Michigan Business School and Edward Maydew of the University of North Carolina's Kenan-Flagler Business School, investigates the tax consequences of accounting fraud in a new study, "How Much Will Firms Pay for Earnings That Do Not Exist? Evidence of Taxes Paid on Allegedly Fraudulent Earnings."

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