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Product Market Competition, Information and Earnings Management

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  • GAREN MARKARIAN

    ()
    (Instituto de Empresa)

  • JUAN SANTALO

    ()
    (Instituto de Empresa)

Abstract

Abstract: We study the effect of product market competition on the incentives to engage in earnings manipulation and we find that they crucially depend on the level of visibility of firm real activity in the marketplace. If investors can perfectly observe real firm output and sales, then CEOs are forced to act in the marketplace in a consistent manner with the earnings they are reporting. We show in a simple model how this is too expensive in more competitive markets and therefore competition should reduce rather than increase earnings manipulation. On the contrary, if investors and analysts cannot observe firm real output in the marketplace we show how manipulating earnings might be particu

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Bibliographic Info

Paper provided by Instituto de Empresa, Area of Economic Environment in its series Working Papers Economia with number wp10-03.

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Length: 30 pages
Date of creation: May 2010
Date of revision:
Handle: RePEc:emp:wpaper:wp10-03

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  1. Cuñat, Vicente & Guadalupe, Maria, 2006. "Globalization and the Provision of Incentives Inside the Firm," CEPR Discussion Papers 5950, C.E.P.R. Discussion Papers.
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Cited by:
  1. Santanu Mitra & Mahmud Hossain & Pankaj Jain, 2013. "Product market power and management’s action to avoid earnings disappointment," Review of Quantitative Finance and Accounting, Springer, vol. 41(4), pages 585-610, November.

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