An Examination of Firms Charged with Medicare and Medicaid Fraud: Does Corporate Governance Matter?

Abstract

Prior research provides evidence that firms charged with financial reporting fraud have relatively weak corporate governance. According to the theory of the firm, effective corporate governance monitors management in order to detect and prevent activities, such as fraud, that conflict with the best interests of the firm and its owners. This paper compares a sample of health care firms charged with committing Medicare and Medicaid fraud with a control sample of firms in the same industry segments that were not charged with government health care program fraud. Governance mechanisms related to the strength of the Board of Directors, audit committee, stock ownership, and auditor are evaluated. The results indicate that the overall corporate governance of the fraud firms is weaker that that of the control sample firms.