Document Type : Research Paper

Authors

• Nasibeh Shafakheibari ¹
• Alireza Hirad ²
• Mohammadreza Abdoli ³
• Reza Sotudeh ⁴

¹ Department of Accounting, Zah.C., Islamic Azad University, Zahedan, Iran

² Department of Accounting, Khas.C., Islamic Azad University, Khash, Iran

³ Department of Accounting, Sha.C., Islamic Azad University, Shahrood, Iran

⁴ Department of Financial and Accounting, Faculty of Humanities, Meybod University, Meybod, Iran

Abstract

This study, through a paradigmatic phenomenological approach, seeks to present a model for understanding the influential role of Ponzi schemes in the formation of opportunistic accounting practices. In the first stage, an attempt was made to identify the propositional themes of the Ponzi phenomenon in the formation of opportunistic accounting practices through interviews with 20 participants with lived experience, using open-ended questions and codes derived from the Ponzi phenomenon. Subsequently, by creating a researcher-developed checklist rated on the "+8," "0," and "-8" scales, the third stage of data collection sought to classify the propositions into more general conceptual categories, based on focus group scores, in order to develop a paradigmatic model through the categorization of propositional themes. The results of the study, after identifying 371 open codes from the 20 interviews conducted, indicate the identification of 50 propositional themes in the form of a researcher-developed scoring checklist. By assigning focal points to each participant within the specified evaluation panels, the analysis ultimately led to the presentation of a paradigmatic model consisting of 10 categories across five dimensions.

Introduction

The majority of research on the causes and consequences of accounting fraud has been conducted by comparing fraudulent companies to other companies, and the results presented in this regard, although important, have not been able to significantly reduce their effects on investment perceptions in the market. In other words, in the study of fraudulent companies, the relationship between accounting violations and business and legal anomalies, such as long-term appointment of managers, lawsuits, and declining stock prices, is, to a large extent, evident, one possible consequence of which is the emergence of financial distortions through accounting tools that have been repeatedly challenged in prior research. In contrast to these studies, the present study focuses on one of the most emerging opportunistic processes in companies, which can also be implemented through accounting procedures in the contemporary business environment.

Literature Review

The Ponzi scheme, one of the most well-known concepts in the global financial economy, refers to a planned method of fraud and distortion in which income payable to previous investors is generated by attracting capital from new investors. Companies that take advantage of this phenomenon for greater profits secure their returns solely from these intermediary financial flows and, without engaging in any activity that produces real income or profit, often obtain benefits by luring investors. The historical development of this scheme indicates that the use of such methods of distortion and fraud has a long history, dating back to the 1920s and the widespread fraud of Charles Ponzi, who was able to victimize Italian immigrants for his personal gain. Although a review of this historical process shows that analyzing investment experiences and financial crises provides useful insights in this area, today's companies often continue to exploit the potential of this method for profit-seeking purposes, particularly in light of weaknesses in regulatory mechanisms.

Methodology

Research conducted with the aim of ​​paradigm building should be categorized as studies that seek abstractions from the context under study. This is because past research likely did not fully consider the external and internal influences on a cognitive phenomenon, which may be subjectivized. Therefore, presenting a paradigmatic model helps to understand the phenomenon within the context of the study. This section describes the nature of the methodology of the present study based on the principles of paradigmatic phenomenology. Accordingly, during the interview process with experienced actors in the context of the study, the contexts that can influence the phenomenon in line with the five paradigmatic conditions, causal conditions, contextual, intervening, strategies, and consequences, are first identified, so that, through open coding, the subsequent steps can be taken to develop the final paradigmatic model. Therefore, the study employs two primary tools: (1) interviews to explore the context of the phenomenon based on open coding, and (2) checklist scoring scales to evaluate the emerged contexts and classify them into paradigmatic categories. In these explanations, the present study can be described as exploratory in terms of its purpose, which, given the novelty of the Ponzi phenomenon, is justified in identifying the influential contexts emphasized in the first research question. Conducting interviews with participants who have knowledge and experiential expertise, like puzzle pieces, reveals scientific unknowns of the phenomenon under study. In terms of outcomes, from another methodological perspective, the present study can also be considered developmental, as it addresses the lack of reliable cognitive approaches to the Ponzi phenomenon in accounting procedures and contributes to a clearer ​​understanding of financial distortions and frauds. Finally, in terms of data collection, this study is classified as qualitative research with an inductive approach.

Result

This study began by selecting 20 participants with lived experience to identify the propositional themes that, through interviews with open-ended questions and codes derived from the Ponzi phenomenon, indicate the areas of this phenomenon that can influence the formation of opportunistic accounting practices. From the 20 interviews conducted, 371 open codes were identified, which were grouped into 50 propositional themes. These themes were evaluated using a researcher-developed scoring checklist within focus groups, which ultimately informed the final paradigmatic model.

Discussion

Paradigmatic phenomenology is recognized as a sociological approach within both theoretical and applied fields, drawing on areas of humanities knowledge where, due to the novelty of the central phenomenon, there is no coherent understanding within the context of the study. Accordingly, this study employs paradigmatic phenomenology with the aim of exploring the ontology of the Ponzi phenomenon in the formation of opportunistic accounting procedures in commercial companies. This phenomenon, as one of the domains of financial distortion and fraud in commercial companies, influences the emergence of opportunistic accounting as a hidden tool used by many companies in competitive financial markets. Due to its novelty, it lacks sufficient cognitive coherence in existing literature. For this reason, by following the analytical stages of the paradigmatic phenomenological process, the study aims to develop a model as the ultimate goal, in order to explore the influential aspects of the Ponzi phenomenon in the emergence of opportunistic accounting practices.

Conclusion

The results obtained from the final paradigmatic model regarding the ontology of the Ponzi phenomenon in the emergence of opportunistic accounting practices provide a foundation for the conceptual and abstract understanding of this phenomenon within the context of commercial companies. The lack of previous research on the theoretical and applied understanding of the existential philosophy of the Ponzi phenomenon has resulted in the connection between this phenomenon and accounting practices, as its implementation tool at the company level, being largely overlooked. For this reason, exploring the various dimensions of the occurrence of such a problem in accounting practices was among the main objectives of this study. This framework demonstrates how companies involved in implementing the Ponzi phenomenon, or so-called scammers (primary project designers), based on the profit obtained from attracting secondary investors, create an opaque financial cycle to provide the expected returns for primary investors. In doing so, they opportunistically pursue their interests using tools such as accounting, often within a set of inefficient market conditions.

Introduction

The majority of research on the causes and consequences of accounting fraud has been conducted by comparing fraudulent companies to other companies, and the results presented in this regard, although important, have not been able to significantly reduce their effects on investment perceptions in the market. In other words, in the study of fraudulent companies, the relationship between accounting violations and business and legal anomalies, such as long-term appointment of managers, lawsuits, and declining stock prices, is, to a large extent, evident, one possible consequence of which is the emergence of financial distortions through accounting tools that have been repeatedly challenged in prior research. In contrast to these studies, the present study focuses on one of the most emerging opportunistic processes in companies, which can also be implemented through accounting procedures in the contemporary business environment.

Literature Review

The Ponzi scheme, one of the most well-known concepts in the global financial economy, refers to a planned method of fraud and distortion in which income payable to previous investors is generated by attracting capital from new investors. Companies that take advantage of this phenomenon for greater profits secure their returns solely from these intermediary financial flows and, without engaging in any activity that produces real income or profit, often obtain benefits by luring investors. The historical development of this scheme indicates that the use of such methods of distortion and fraud has a long history, dating back to the 1920s and the widespread fraud of Charles Ponzi, who was able to victimize Italian immigrants for his personal gain. Although a review of this historical process shows that analyzing investment experiences and financial crises provides useful insights in this area, today's companies often continue to exploit the potential of this method for profit-seeking purposes, particularly in light of weaknesses in regulatory mechanisms.

Methodology

Research conducted with the aim of ​​paradigm building should be categorized as studies that seek abstractions from the context under study. This is because past research likely did not fully consider the external and internal influences on a cognitive phenomenon, which may be subjectivized. Therefore, presenting a paradigmatic model helps to understand the phenomenon within the context of the study. This section describes the nature of the methodology of the present study based on the principles of paradigmatic phenomenology. Accordingly, during the interview process with experienced actors in the context of the study, the contexts that can influence the phenomenon in line with the five paradigmatic conditions, causal conditions, contextual, intervening, strategies, and consequences, are first identified, so that, through open coding, the subsequent steps can be taken to develop the final paradigmatic model. Therefore, the study employs two primary tools: (1) interviews to explore the context of the phenomenon based on open coding, and (2) checklist scoring scales to evaluate the emerged contexts and classify them into paradigmatic categories. In these explanations, the present study can be described as exploratory in terms of its purpose, which, given the novelty of the Ponzi phenomenon, is justified in identifying the influential contexts emphasized in the first research question. Conducting interviews with participants who have knowledge and experiential expertise, like puzzle pieces, reveals scientific unknowns of the phenomenon under study. In terms of outcomes, from another methodological perspective, the present study can also be considered developmental, as it addresses the lack of reliable cognitive approaches to the Ponzi phenomenon in accounting procedures and contributes to a clearer ​​understanding of financial distortions and frauds. Finally, in terms of data collection, this study is classified as qualitative research with an inductive approach.

Result

This study began by selecting 20 participants with lived experience to identify the propositional themes that, through interviews with open-ended questions and codes derived from the Ponzi phenomenon, indicate the areas of this phenomenon that can influence the formation of opportunistic accounting practices. From the 20 interviews conducted, 371 open codes were identified, which were grouped into 50 propositional themes. These themes were evaluated using a researcher-developed scoring checklist within focus groups, which ultimately informed the final paradigmatic model.

Discussion

Paradigmatic phenomenology is recognized as a sociological approach within both theoretical and applied fields, drawing on areas of humanities knowledge where, due to the novelty of the central phenomenon, there is no coherent understanding within the context of the study. Accordingly, this study employs paradigmatic phenomenology with the aim of exploring the ontology of the Ponzi phenomenon in the formation of opportunistic accounting procedures in commercial companies. This phenomenon, as one of the domains of financial distortion and fraud in commercial companies, influences the emergence of opportunistic accounting as a hidden tool used by many companies in competitive financial markets. Due to its novelty, it lacks sufficient cognitive coherence in existing literature. For this reason, by following the analytical stages of the paradigmatic phenomenological process, the study aims to develop a model as the ultimate goal, in order to explore the influential aspects of the Ponzi phenomenon in the emergence of opportunistic accounting practices.

Conclusion

The results obtained from the final paradigmatic model regarding the ontology of the Ponzi phenomenon in the emergence of opportunistic accounting practices provide a foundation for the conceptual and abstract understanding of this phenomenon within the context of commercial companies. The lack of previous research on the theoretical and applied understanding of the existential philosophy of the Ponzi phenomenon has resulted in the connection between this phenomenon and accounting practices, as its implementation tool at the company level, being largely overlooked. For this reason, exploring the various dimensions of the occurrence of such a problem in accounting practices was among the main objectives of this study. This framework demonstrates how companies involved in implementing the Ponzi phenomenon, or so-called scammers (primary project designers), based on the profit obtained from attracting secondary investors, create an opaque financial cycle to provide the expected returns for primary investors. In doing so, they opportunistically pursue their interests using tools such as accounting, often within a set of inefficient market conditions.
 

Keywords

• Opportunistic accounting
• Paradigmatic phenomenology
• Ponzi scheme

Main Subjects

• Financial Accounting
• Accounting and various aspects of finance