A financial scandal is a corporate or investment fraud that erodes public trust in the finance sector. These cases, from the infamous Ponzi scheme of Bernie Madoff to the complicated deceit of Enron and more, illustrate how millions or even billions can be lost when greed and unethical practices trump good governance and financial integrity. The scandals highlight the need for greater oversight of multinational corporations, as well as more rigorous internal auditing and disclosure standards in global finance.
In 2002, telecommunications giant WorldCom was exposed for inflating its earnings by more than $11 billion over several years by hiding line costs. Cynthia Cooper, the company’s Vice President of Internal Audit, is credited with uncovering this accounting irregularity. The scandal sank the company’s stock price, cost investors billions, and forced it into bankruptcy.
During the 1980s, hundreds of savings and loans institutions went bankrupt after making risky investments in real estate and other ventures. This was the result of poor management and regulatory failures, including laxity in lending standards. The losses were estimated to cost taxpayers over $130 billion.
This project quantifies the extent of financial scandal across three centuries and identifies periods when it has been less problematic, reflecting systematic economic and institutional arrangements. It also explores the determinants of fraud, using databases to examine the macroeconomic and corporate characteristics that amplify the probability of fraudulent behaviour. It highlights the need for greater transparency and good governance in global finance, as well as more robust scrutiny of complex financial products and transactions hidden behind opaque corporate structures in tax-haven secrecy jurisdictions.
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