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Smokescreen: How Managers Behave When They Have Something To Hide

Author

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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.

Suggested Citation

  • Tanja Artiga González & Markus Schmid & David Yermack, 2013. "Smokescreen: How Managers Behave When They Have Something To Hide," NBER Working Papers 18886, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:18886
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    References listed on IDEAS

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    Cited by:

    1. Ferr�s, Daniel & Ormazabal, Gaizka & Povel, Paul & Sertsios, Giorgio, 2017. "Capital Structure Under Collusion," CEPR Discussion Papers 12151, C.E.P.R. Discussion Papers.
    2. Murillo Campello & Daniel Ferrés & Gaizka Ormazabal, "undated". "Whistleblowers on the Board? The Role of Independent Directors in Cartel Prosecutions," Documentos de Trabajo/Working Papers 1502, Facultad de Ciencias Empresariales y Economia. Universidad de Montevideo..
    3. Suha Alawi, 2014. "Corporate Governance and Cartel formation," Proceedings of Economics and Finance Conferences 0401246, International Institute of Social and Economic Sciences.

    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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