I show that heeding recent calls to reduce agency costs and managerial short-termism may, in fact, lead to more fraud … both effort and some level of fraud. Where agency costs are large, shareholders will be unwilling to award performance …-based compensation due to the high level of fraud that managers would undertake. The principal findings are (1) fraud can be a sign of …

's Form ADV are useful for predicting fraud. Additional tests show that fraud by rogue employees is more predictable than firm …-wide fraud, but both types of fraud are significantly predictable. We revisit the fraud prediction model of Dimmock and Gerken … (2012) and test its performance out-of-sample (using fraud cases discovered since that article's publication). We find the …

We investigate the impact of fraud risk - measured by the probability for earnings overstatements - on a firm's future … stock market performance. Based on an out-of-sample estimation of individual firms' fraud risk, we find that stocks with … higher fraud risk earn significantly lower stock market returns. A long-short trading strategy delivers a statistically …