FRAUD AND BANK PERFORMANCE NEXUS. EVIDENCE FROM NIGERIA USING VECTOR ERROR CORRECTION MODEL

Abstract

This study, through the use of Vector Error Correction Model, dwell on the fraud triangle theory developed by Cressey, (1971) in examining the impact of fraud on bank performance in Nigerian banking industry using quarterly data spanning from 2000 to 2013.The study found out that the number of staff involved in fraud has a significantly positive impact on the return on asset while the fraud perpetrated and the amount involved in fraud perpetration both have negative impact on bank performance. The expected coefficient of the (VECM) result shows that there is a short run dynamic effect of the changes on the return on asset meaning that the variables adjusted to correct the imbalances in the fraudulent banking environment. Therefore, the study recommends that banks need to strengthen their internal control systems to be able to detect and prevent fraudulent activities and to protect its assets in the banking industry in Nigeria.