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Smokescreen: How managers behave when they have something to hide

Authors: Schmida, Markus
Gonzáleza, Tanja Artiga
Yermack, David
Keywords: Cartels, price fixing, accounting fraud, boards of directors, corporate governance
Issue Date: 7-Mar-2013
Series/Report no.: FIN-13-002
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.
Appears in Collections:Finance Working Papers

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