Finance Seminar: Associate Professor Pamela Moulton
Catch Me If You Can: Improving the Scope and Accuracy of Fraud Prediction
We propose a parsimonious metric – the Adjusted Benford score (AB-score) – to improve the detection of financial misstatements. Based on Benford’s Law, which predicts the leading-digit distribution of naturally occurring numbers, the AB-score estimates a given firm-year’s likelihood of financial statement manipulation, compared to its peers and controlling for time-series trends. The AB-score requires less data than the leading accounting-based misstatement metric (the F-score) and can be computed for a broader range of firms, including financial firms. Combining the AB-score and F-score variables in one model yields higher accuracy in predicting misstatements in- and out-of-sample. Researchers can improve the scope and accuracy of misstatement prediction by using the AB-score for financial firms and firm-years with missing data and the combined model (ABF-score) when all data are available.
Pamela Moulton is an associate professor of finance at Cornell’s School of Hotel Administration. Her teaching and research interests include financial markets and market microstructure, with a special interest in the role of investors. Her current research focuses on institutional trade holding periods, the impact of institutional investment and high-frequency trading on stock performance, and how investors trade on sell-side analyst recommendations. Moulton’s research has been published in several of the leading finance and accounting journals, including the Journal of Finance, the Journal of Financial Economics, the Journal of Accounting and Economics, and the Journal of Financial and Quantitative Analysis.
Prior to her academic career, Moulton worked in fixed-income research for more than a dozen years at various Wall Street investment banks, including Deutsche Bank, where she was a managing director and global co-head of relative value research. From 2003 to 2006, she was a managing director and senior economist at the New York Stock Exchange, where she focused on equity market microstructure research. Moulton is a chartered financial analyst (CFA). She earned her BS in economics at the Wharton School of the University of Pennsylvania and her PhD in finance and MPhil from the Columbia University Graduate School of Business. She was previously on the faculty of the Graduate School of Business Administration at Fordham University.