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Smokescreen: How Managers Behave When They Have Something to Hide

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  • Artiga González, Tanja

    ()

  • Schmid, Markus

    ()

  • Yermack, David

    ()

Abstract

We study financial reporting and corporate governance in 216 U.S. companies accused of price fixing by antitrust authorities. We document a range of strategies used by these firms when reporting financial results, including frequent earnings smoothing, segment reclassification, and restatements. In corporate governance, cartel firms favor outside directors who are likely to be inattentive monitors due to their status as foreign or “busy.” When directors resign, they are often not replaced, and new auditors are rarely engaged. Cartel managers exercise their stock options faster than managers of other firms. 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 personal wrongdoing.

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File URL: http://www1.vwa.unisg.ch/RePEc/usg/sfwpfi/WPF-1309.pdf
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Bibliographic Info

Paper provided by University of St. Gallen, School of Finance in its series Working Papers on Finance with number 1309.

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Length: 37 pages
Date of creation: Mar 2013
Date of revision:
Handle: RePEc:usg:sfwpfi:2013:09

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Keywords: Cartels; price fixing; accounting fraud; boards of directors; corporate governance.;

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  1. John M. Connor, 2010. "Recidivism Revealed: Private International Cartels 1990-2009," CPI Journal, Competition Policy International, Competition Policy International, vol. 6.
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