The rising phenomenon of financial scams: evidence from Japan

Abstract

Purpose This study aims to examine the demographic, socio-economic and personality determinants of financial scams. Design/methodology/approach This study uses data on scams collected in Hiroshima prefecture in Japan for the analysis and analyzes using the logit regression model. Findings The results show that the current level of financial dissatisfaction increases the probability of being a victim of a financial scam. No other demographic or socio-economic factor is related to incidents of financial scams. Using the “big five personality traits,” this study finds that lower conscientiousness is the only personality trait that increases the probability of being a victim of a financial scam. Research limitations/implications Overall, the results suggest that people with low conscientiousness could be easy targets of financial scams and financially dissatisfied people could engage in potentially risky and fraudulent projects. Originality/value Financial scams are a long-standing concern for Japan. Every year, an increasing number of financial scams are being reported, though there are very few empirical studies examining victims’ profiles and other determining factors.

Who Is Next? A Study on Victims of Financial Fraud in Japan

“…However, these factors are likely to have a different influence at the specific level because peoples' behavior, cognitive judgment, and lifestyle make them susceptible to a particular type of fraud. Kadoya et al (2020a), a study closely related to ours, discussed the phenomena of financial scams in Japan and outlined victim profiles. However, the study was conducted at the aggregate level and the number of victims in the sample was limited.…”

“…Lack of authentic information is one of the reasons for the lack of empirical studies on special financial frauds. Victims of financial frauds do not usually report these incidents because they are either unaware of the fraud when it happens, or they do not know where to report it, or do not report it at all because of the social embarrassment it involves (Ross and Smith, 2011;The Japan Times, 2019;Kadoya et al, 2020a; The United States Department of Justice, 2020). A nationwide study conducted by Hiroshima University, Japan, in 2020 comprehensively surveyed special financial frauds.…”

Predicting Fraud Victimization Using Classical Machine Learning

“…Prior researchers found evidence to suggest that gender, age, occupation and education level are associated with fraud victimization and financial risk [ 10 , 57 , 63 ]. To some extent, financial risk-taking was found to be associated with greater risk of victimization [ 27 ].…”

“…On one hand there is evidence showing that a lack of financial literacy is an indicator of fraud victimization [ 3 , 4 ]. However, more recent research has indicated that the number of fraud victims who are financially literate is proportionately higher than those with limited financial knowledge [ 9 , 57 , 68 ]. In this study, the researcher coded investment knowledge as a categorical variable classified it at three levels: poor, moderate and good.…”

“…A review of the literature on the effect of mental illness showed that cognitive impairment is strongly associated with behavioural changes and may contribute to victims falling prey to financial crime [ 5 , 48 , 50 , 52 , 53 , 56 ]. Other cognitive impairments are instrumental in the increasing likelihood of vulnerability to financial crime [ 7 , 57 ]. One such factor is “doubt deficit” [ 50 ] (p. 3).…”