THE INFLUENCE OF ORGANIZATIONAL CULTURE ON CORPORATE FRAUD: A QUANTITATIVE EMPIRICAL ANALYSIS USING TEXT MINING OF CORPORATE PHILOSOPHY

Abstract

 This study considers the corporate philosophy of a company and attempts to verify the effect of organizational culture on corporate fraud through quantitative empirical analysis using text mining. The result of my empirical research using terms extracted by frequency analysis shows that companies with a stakeholder-oriented philosophy and a society-oriented philosophy have had reduced fraudulent activities. On the contrary, companies with a region-oriented philosophy have had an increase in fraudulent activities. The results of additional cluster analysis show that companies with social contribution and value creation philosophies have had a reduction in fraudulent activities. Companies with a philosophy of denying fraud do not show any significant fraudulent activities. The results of a quantitative empirical analysis indicate that corporate organizational culture may have an effect on corporate fraud. While previous research mainly analyzed the impact of governance systems on corporate fraud and recommended countermeasures, this research will make the following contributions. This study empirically shows that corporate culture can affect fraud. By using text mining of corporate philosophy as a proxy variable of organizational culture, the factors affecting corporate fraud were quantitatively analyzed. Further, it also empirically demonstrates what organizational cultures may have an effect. If corporate fraud is affected by organizational culture, simply changing corporate governance at the directorate level, such as to increase the total of outside directors is not enough to combat corporate fraud. I believe that the corporate culture of a company should be regarded as one of the governance mechanisms for the sustainable survival of the company.