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Title: Fraudulent financial reporting and technological capability in the information technology sector : a resource-based perspective
Authors: Fung, MK 
Issue Date: May-2019
Source: Journal of business ethics, May 2019, v. 156, no. 2, p. 577-589
Abstract: Motivated by the disproportionately high incidence of fraudulent financial reporting in the IT sector where technological capability is a major source of competitive advantage, this study investigates the possible relationship between technological capability and fraud probability in the IT sector. Technological capability is measured by a firm’s technical efficiency relative to peers in transforming cumulative R&D resources into innovative output, which is a source of competitive advantage, according to the resource-based view (RBV) of the firm. Technical efficiency is estimated via data envelopment analysis. A sample of fraud firms taken from Accounting and Auditing Enforcement Releases is matched with control samples of non-fraud firms. Consistent with the RBV, technological capability is found to have a negative and economically significant effect on fraud probability. Moreover, fraud probability is insignificantly associated with the scale efficiency of innovative activities, as investment in R&D resources per se is not a source of sustainable competitive advantage.
Keywords: Fraudulent financial reporting
Information technology sector
Resource-based view
Technological capability
Publisher: Springer
Journal: Journal of business ethics 
ISSN: 0167-4544
EISSN: 1573-0697
DOI: 10.1007/s10551-017-3605-4
Rights: © Springer Science+Business Media B.V. 2017
This version of the article has been accepted for publication, after peer review (when applicable) and is subject to Springer Nature’s AM terms of use (, but is not the Version of Record and does not reflect post-acceptance improvements, or any corrections. The Version of Record is available online at:
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