Abstract

http://ssrn.com/abstract=2298302
 
 

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Do Fraudulent Firms Engage in Disclosure Herding?


Gerard Hoberg


University of Maryland - Department of Finance

Craig M. Lewis


Vanderbilt University - Finance

August 14, 2013

Vanderbilt Owen Graduate School of Management Research Paper No. 2298302
Robert H. Smith School Research Paper

Abstract:     
We present two new hypotheses regarding the strategic qualitative disclosure choices of firms involved in potentially fraudulent activity. First, these firms have incentives to herd with industry peers in order to escape detection. Second, these firms have incentives to locally anti-herd with the same peers on specific aspects of disclosure consistent with achieving fraud-driven objectives. We use text-based analysis of firm disclosures and compare disclosures across firms involved in SEC enforcement actions to benchmarks based on industry, size and age, and also to each firm's own disclosure before and after SEC alleged violations. We find especially strong support for the conclusion that firms involved in alleged fraud anti-herd with industry peers on localized disclosure dimensions. We find moderately strong support for the conclusion that they herd with industry peers on broader disclosure dimensions. Content analysis then reveals key vocabulary terms used by firms involved in enforcement actions, and suggests that these firms use complexity to potentially conceal fraudulent activity, and these firms often discuss issues relating to uncertainty, litigation, and speculative statements.

Number of Pages in PDF File: 53

Keywords: Fraud, Disclosure, Herding, Litigation, Text Analytics, Enforcement

JEL Classification: G34, G38, G39, M41

working papers series


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Date posted: July 26, 2013 ; Last revised: October 10, 2013

Suggested Citation

Hoberg, Gerard and Lewis, Craig M., Do Fraudulent Firms Engage in Disclosure Herding? (August 14, 2013). Vanderbilt Owen Graduate School of Management Research Paper No. 2298302; Robert H. Smith School Research Paper. Available at SSRN: http://ssrn.com/abstract=2298302 or http://dx.doi.org/10.2139/ssrn.2298302

Contact Information

Gerard Hoberg (Contact Author)
University of Maryland - Department of Finance ( email )
Robert H. Smith School of Business
Van Munching Hall
College Park, MD 20742
United States
HOME PAGE: http://www.rhsmith.umd.edu/finance/faculty/hoberg.aspx
Craig M. Lewis
Vanderbilt University - Finance ( email )
401 21st Avenue South
Nashville, TN 37203
United States

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