Fraud at a Distance? How Remote Work Shapes Financial Misconduct

Financial misconduct is often a team activity, facilitated by face-to-face interactions, shared norms, and trust. We exploit the sudden shift to remote work during COVID-19 to examine how workplace organization shapes collusion and financial misconduct. Using a novel firm-level measure of work-from-home feasibility, we find that firms that are more able to operate remotely experienced large post-2020 declines in misconduct. This decline is found across multiple misreporting proxies and is robust to various alternative measures of remote work. Cross-sectional tests indicate stronger declines in teamwork-intensive firms, firms with effective internal controls, and firms with weaker pre-COVID employee perceptions of culture and leadership. Overall, our findings reflect that financial misconduct is a team activity, sensitive to the organizational structure of the firm, with important implications for governance and organizational design.