Financial Manipulation: Words Don't Lie

Abstract:     
Reliable financial reporting is critical to the efficiency of capital markets. Despite its importance, managers may have incentive to misrepresent financial results for personal gain.

While academics and professionals have developed models to detect aggressive accounting, these have been met with limited success. Still, there is some evidence that quantitative models may be improved through the application of techniques developed by linguists and psychologists to identify deceptive language and behavior.

Why don’t shareholders and analysts apply these techniques to evaluate the truthfulness of management?

Reference: Detecting Deceptive Discussions in Conference Calls (working paper on SSRN)

The Closer Look series is a collection of short case studies through which we explore topics, issues, and controversies in corporate governance. In each study, we take a targeted look at a specific issue that is relevant to the current debate on governance and explain why it is so important. These free instructional materials may be used in the classroom and by practitioners who want to develop a more sophisticated understanding of governance practices.

Number of Pages in PDF File: 5

Keywords: transparency, disclosure, accounting restatements, corporate governance

JEL Classification: G30, G34

Accepted Paper Series