Impact of low‐performance signals on employee fraud in public organizations: Evidence from a pay‐for‐performance context

Abstract

Employee fraud, defined as the misuse of organizational resources for personal financial gain, has long been a serious issue in public organizations, risking deteriorated performance outcomes. Although previous public administration research has discussed organizational cheating related to organizational performance, we need to inquire further about employee fraudulent behaviors across public organizations and other scenarios that cause those behaviors. This study focuses on whether performance outcomes affect employee fraud in the context of high‐stakes performance management. To test this relationship, this study links data from performance evaluation and integrity assessment for South Korean government corporations. A regression discontinuity design (RDD) was employed to estimate the impact of performance shortfalls on employee fraud. The results show that employees in poor‐performing public corporations are more likely to abuse operating expenses, benefit allowance, and project expenses than employees in relatively high‐performing organizations.