Product Market Competition and Financial Accounting Misreporting
University of Pennsylvania - Accounting Department; University of Pennsylvania - The Wharton School
Daniel A. Cohen
University of Texas at Dallas - Naveen Jindal School of Management
September 14, 2011
We show that, on average, the level of product market competition acts as a disciplining force constraining managers from misreporting accounting information. Further, in a quasi-natural experiment that uses shifts in import tariffs to identify exogenous intensification of competition, difference-in-difference estimations support the causal nature of the disciplining effect of competition on misreporting. Moreover, we find that the relation is stronger in industries with higher levels of financial statement comparability. Our findings are robust across alternate measures of misreporting including restatements and accounting irregularities as well as to measures of product market competition including those based on the U.S. Census.
Number of Pages in PDF File: 59
Keywords: Product Market Competition, Disclosure, Financial Reporting Quality, Earnings Restatements, Tariffs
JEL Classification: D4, G34, L1, M40, M41working papers series
Date posted: September 15, 2011
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