We rely on the theoretical prediction that financial misreporting peaks before economic busts to examine whether aggregate ex ante measures of the likelihood of financial misreporting improve the predictability of U.S. recessions. We consider six measures of misreporting and show that the...

An earnings manipulation detection model based on forensic accounting principles (Beneish 1999) has substantial out-of-sample ability to predict cross-sectional returns. We show that the model correctly identified, ahead of time, 12 of the 17 highest profile fraud cases in the period 1998-2002....

The paper provides a cost-based explanation for decision makers' reluctance to use fraud prediction models, particularly as these models have nearly doubled their success at identifying fraud (true positive rates) when compared to the initial models in Beneish (1997, 1999). We estimate the costs...