Corporate Control and Managerial Misrepresentation of Firm Performance

Gerald L. Salamon and E. Dan Smith

Bell Journal of Economics, 1979, vol. 10, issue 1, 319-328

Abstract: This paper presents two tests of the hypothesis that the managers of management-controlled firms exercise their control over the information contained in annual reports in a manner which may misrepresent firm performance. The first test finds that management-controlled firms have a significantly smaller proportion of years in which the signs of unexpected accounting earnings and unexpected security returns are the same than do owner-controlled firms. The second test finds that the timing of certain accounting policy decisions made by the managers of management-controlled firms is related to the current level of the firm's security return performance.

Date: 1979
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