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Smokescreen: How Managers Behave When They Have Something To Hide

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  • Tanja Artiga González
  • Markus Schmid
  • David Yermack

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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18886.

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Date of creation: Mar 2013
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Handle: RePEc:nbr:nberwo:18886

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