Smokescreen: How Managers Behave When They Have Something To Hide

Tanja Artiga Gonzalez, Markus Schmid and David Yermack

No 18886, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study financial reporting and corporate governance in 218 companies accused of price fixing. These firms engage in evasive financial reporting strategies, including earnings smoothing, segment reclassification, and restatements. In corporate governance, cartel firms favor outside directors likely to monitor inattentively due to low attendance, other board seats, and overseas residence. When directors resign, they are often not replaced, and auditors are rarely switched. Cartel firms have unusually low CEO turnover and rely on internal management promotions. Their managers exercise stock options faster than managers of other firms. Cartel firms are large donors to political candidates. While our results are based only upon firms engaged in price fixing, we expect that they should apply generally to all companies in which managers seek to conceal poor performance or wrongdoing.

JEL-codes: D43 G34 L40 (search for similar items in EconPapers)
Date: 2013-03
New Economics Papers: this item is included in nep-hme
Note: CF LE
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Citations: View citations in EconPapers (7)

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