Corporate Fraud and Business Conditions: Evidence from IPOs
AbstractWe examine how a firm's incentive to commit fraud when going public varies with investor beliefs about industry business conditions. Fraud propensity increases with the level of investor beliefs about industry prospects but decreases when beliefs are extremely high. We find that two mechanisms are at work: monitoring by investors and short-term executive compensation, both of which vary with investor beliefs about industry prospects. We also find that monitoring incentives of investors and underwriters differ. Our results are consistent with models of investor beliefs and corporate fraud, and suggest that regulators and auditors should be vigilant for fraud during booms. Copyright (c) 2010 the American Finance Association.
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Bibliographic InfoArticle provided by American Finance Association in its journal The Journal of Finance.
Volume (Year): 65 (2010)
Issue (Month): 6 (December)
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- Kathleen Weiss Hanley & Gerard Hoberg, 2011.
"Litigation risk, strategic disclosure and the underpricing of initial public offerings,"
Finance and Economics Discussion Series
2011-12, Board of Governors of the Federal Reserve System (U.S.).
- Hanley, Kathleen Weiss & Hoberg, Gerard, 2012. "Litigation risk, strategic disclosure and the underpricing of initial public offerings," Journal of Financial Economics, Elsevier, vol. 103(2), pages 235-254.
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