The spillover effect of fraudulent financial reporting on peer firms' investments

Anne Beatty, Scott Liao and Jeff Jiewei Yu

Journal of Accounting and Economics, 2013, vol. 55, issue 2, 183-205

Abstract: We investigate how high-profile accounting frauds affect peer firms' investment. We document that peers react to the fraudulent reports by increasing investment during fraud periods. We show that this finding is not driven by frauds that have a higher ex ante likelihood of detection or by an association between fraud and investment booms. In addition, we find that peers’ investments increase in fraudulent earnings overstatements, and in industries with higher investor sentiment, lower cost of capital and higher private benefits of control. We also find evidence consistent with equity analysts potentially facilitating the spillover effect.

Keywords: Fraudulent financial reporting; Spillover effect; Investment efficiency (search for similar items in EconPapers)
JEL-codes: G30 M41 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (76)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:55:y:2013:i:2:p:183-205

DOI: 10.1016/j.jacceco.2013.01.003

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