Corporate Fraud: Evidence from the Russian Banking Sector

The research is mainly driven by academic interest, since the association between corporate governance and fraud is not much studied, neither for financial nor for non-financial institutions. This study aims to find out, which corporate governance mechanisms have a significant relationship with the likelihood of fraud and with the probability of default in general. A novel dataset from the Russian banking sector is used, with commercial banks’ characteristics considered over a period from 2010 to 2015. The analysis is performed with the help of logistic regression method for dependent variables ‘bank failure with fraud within one year’ and ‘bank failure within one year’. Based on the research conducted, associations between corporate governance mechanisms and the likelihood of fraud and between corporate governance characteristics and the probability of default are determined. Sufficiently large sample size of 576 unique banks (and over 6 years) and robustness checks via different estimation techniques ensure reliability of results. The results of the paper are presented in 12 tables, on 7 histograms and charts and in 7 appendices. 58 data sources are used. The paper consists of 35 pages and 12 pages of appendices. Potential criteria are determined, which would allow early and more effective detection of fraudulent practices’ presence. The findings of this research may be useful for the Russian banking sector regulators.