Abstract

http://ssrn.com/abstract=2298302
 
 

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Do Fraudulent Firms Strategically Manage Disclosure?


Gerard Hoberg


University of Maryland - Department of Finance

Craig M. Lewis


Vanderbilt University - Finance

August 17, 2014

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 textual disclosures of fraudulent firms. First, these firms manage disclosure to escape detection. Second, they manage disclosure to achieve fraud-driven benefits, such as an inappropriately low cost of financing. We use text-based analysis of 10-K MD&A disclosures to compare disclosures of firms involved in SEC enforcement actions to various counterfactuals including each firm's own disclosure both before and after the alleged violations. We find support for both hypotheses. Content analysis reveals that fraudulent firms under-disclose details relating to governance, financial constraints and explaining revenues. The results suggest that fraudulent firms deflect attention away from the underlying problems that precipitated fraudulent behavior.

Number of Pages in PDF File: 56

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: August 27, 2014

Suggested Citation

Hoberg, Gerard and Lewis, Craig M., Do Fraudulent Firms Strategically Manage Disclosure? (August 17, 2014). 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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