Forensic Finance

Abstract

The financial world does not have the best reputation. One of the problems is the perceived lack of integrity of financial markets, which is fuelled by examples of financial misconduct. I argue that with financial data becoming more widely available and constantly improving, financial researchers could help in identifying suspicious behavior in financial markets. I will provide examples of potentially fraudulent behavior surrounding executive compensation and security issuance. Allegedly, companies have backdated executives’ stock options and as such have increased executives’ effective compensation, and there might be widespread insider trading before the announcements of privately placed securities. Systematic analyses of the available data could detect these examples of misconduct. Overall, forensic finance has the potential to detect suspicious behavior and as such could play an important role in understanding and improving the integrity of the financial world.