When a tipster sent this over yesterday it seemed obvious prior to clicking the link they were joking when they suggested that “people exposed to fraud have a modest increase in joining the accounting profession.” Surely that had to be a joke about professors always spouting how great it is to work at Big 4. But no, that’s actually what the research in “Externalities of Financial Statement Fraud on the Incoming Accounting Labor Force,” published in the Journal of Accounting Research, appears to have found.
Accounting is facing a labor crisis. Could fraud be part of the solution?
OMG they’re serious. And it says:
Expert concerns of a potential rise in financial fraud with fewer accounting professionals in the field notwithstanding, fraud plays a surprising role in the accounting labor force, according to new research from the University of Florida.
“Research to date suggests that financial fraud can have damaging consequences, like increased criminal activity as well as reduced trust and participation in capital markets,” said Assistant Professor Robert Carnes. “Insights from these studies imply that fraud would create a negative stigma around the labor market for all business fields, and accounting in particular, but we find the opposite.”
Carnes, along with co-authors Paul Madsen of the University of Florida and Dane Christensen of the University of Oregon, find that incoming students are actually more likely to major in accounting when local frauds occur during their formative years. Specifically, the researchers find a 4% increase in the likelihood of majoring in accounting when local financial frauds are covered by the news media during students’ formative high-school years.
“This size effect is modest,” Carnes explained. “But we view it as meaningful because it suggests that fraud does not harm the flow of students into the accounting major, but rather it attracts more students.”
The abstract explains further (emphasis ours):
Financial statement fraud generates many negative effects, including reducing people’s willingness to participate in the stock market. If it also stigmatizes accounting, it may similarly adversely affect the quantity and quality of workers willing to become accountants, thereby potentially creating negative effects for years to come. We examine the impact of fraud on the labor force entering the accounting profession, which is a key input into the production of accounting information (i.e., the output). Using data describing millions of college students across the United States, we find incoming students are actually more likely to major in accounting when local frauds occur during their formative years. These students are also more likely to have attributes desired by the accounting profession (e.g., high academic aptitude) and are more likely to subsequently serve in public accounting and become Certified Public Accountants. In the context of other fields (i.e., all college majors), we find that fraud similarly spurs interest in other business disciplines, but not in majors outside of business schools. Those attracted to other business disciplines, however, generally possess different traits. Specifically, students entering accounting are distinctively more likely to exhibit values espoused by the accounting profession, including a predisposition to public service and less commercial orientation. Thus, nonpecuniary motives appear to uniquely drive accounting student enrollment following fraud. Collectively, our findings suggest that, while fraud is unmistakably bad, it appears to have the positive unintended consequence of attracting labor into business disciplines and, in accounting, increasing the prevalence of desirable traits among entrants.
Well clearly there have to be some nonpecuniary motives at work otherwise accounting graduate numbers would be even lower than they already are.
The data also suggests that accounting graduates with higher rates of fraud exposure in high school are more likely to work in public accounting, work for a Big 4 firm, and become CPAs. So get to frauding, people!