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Licensed Unlicensed Requires Authentication Published by De Gruyter November 30, 2019

Benford and the Internal Capital Market: A Useful Indicator of Managerial Engagement

  • Florian El Mouaaouy and Jan Riepe
From the journal German Economic Review

Abstract

We propose the application of digit analysis using the Benford law to indicate managerial engagement in the capital allocation process. First, we motivate the potential of the Benford digit analysis to identify allocation outcomes that are shaped by human engagement instead of fixed decision rules. Second, we provide a case study to illustrate how the Benford digit analysis can be used to detect allocations affected by managerial interventions. We are unaware of any study applying the Benford test to internal capital markets, while this approach appears very useful in this context. It is commonly used in the auditing, financial accounting, and fraud detection literature.

Published Online: 2019-11-30
Published in Print: 2018-08-01

© 2019 by Walter de Gruyter Berlin/Boston

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