Smokescreen: How Managers Behave When They Have Something to Hide
Tanja Artiga González
University of St. Gallen - SoF: School of Finance
Markus M. Schmid
University of St. Gallen - Swiss Institute of Banking and Finance; University of St. Gallen - SoF: School of Finance
New York University (NYU) - Stern School of Business
August 13, 2014
NYU Working Paper No. FIN-13-002
University of St.Gallen, School of Finance Research Paper No. 2013/9
We study financial reporting and corporate governance in 218 companies accused of price fixing. 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. These firms engage in evasive financial reporting strategies, including earnings smoothing, segment reclassification, and restatements. 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.
Number of Pages in PDF File: 62
Keywords: Cartels, price fixing, accounting fraud, boards of directors, corporate governance
JEL Classification: D43, G34, K42, L40, M43
Date posted: March 10, 2013 ; Last revised: January 12, 2015
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