Everlasting Fraud

Everlasting Fraud

Vivian Fang, Nan Li, Wenyu Wang, Gaoqing Zhang

Series number :

Serial Number: 

Date posted :

December 01 2021

Last revised :

December 01 2021
SSRN Share


  • regulation • 
  • financial reporting • 
  • Accounting fraud • 
  • Crime

This paper proposes a new theory to explain why corporate fraud waves always resurface despite tough anti-fraud regulations. Our model offers two insights. First, the interdependent nature of fraud and regulation presents a cat-and-mouse equilibrium within-firm because detection strength optimally matches fraud severity.

Second, it yields a whack-a-mole equilibrium across-firm because regulatory resources are optimally concentrated on the most fraudulent firms. Therefore, regulations cannot eradicate fraud but synchronize firms’ idiosyncratic fraud decisions, contributing to waves. These results carry strong policy implications by highlighting fraud as a permanent risk in the financial markets and the limited efficacy of anti-fraud regulations.


Real name:
Nan Li
Assistant Professor of Finance
Real name:
Wenyu Wang
Indiana University Kelley School of Business
Real name:
Gaoqing Zhang