Abstract

http://ssrn.com/abstract=687225
 
 

References (19)



 
 

Citations (71)



 


 



The Economics of Fraudulent Accounting


Simi Kedia


Rutgers Business School

Thomas Philippon


New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

January 2005

AFA 2006 Boston Meetings Paper

Abstract:     
We study the consequences of earnings management for the allocation of resources among firms, and we argue that fraudulent accounting has important economic consequences. We first build a model where the costs of earnings management are endogenous, and we show that, in equilibrium, bad managers hire and invest too much, distorting the allocation of real resources. We test the predictions of the multidimensional signalling model using new historical and firm-level data. We first show that periods of high stock market valuations are systematically followed by large increases in reported frauds. We then show that, during periods of suspicious accounting, insiders sell their stocks, while misreporting firms hire and invest like the firms whose income they are trying to match. When they are caught, they shed labor and capital and improve their true productivity. In the aggregate, our model seems able to account for the recent period of jobless and investment-less growth.

Number of Pages in PDF File: 32

JEL Classification: D21, E22, E24, G3

working papers series





Download This Paper

Date posted: March 23, 2005  

Suggested Citation

Kedia, Simi and Philippon, Thomas, The Economics of Fraudulent Accounting (January 2005). AFA 2006 Boston Meetings Paper. Available at SSRN: http://ssrn.com/abstract=687225 or http://dx.doi.org/10.2139/ssrn.687225

Contact Information

Simi Kedia
Rutgers Business School ( email )
117 Levin
94 Rockafellar Road
Piscataway, NJ
United States
8484454195 (Phone)
Thomas Philippon (Contact Author)
New York University (NYU) - Department of Finance ( email )
Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Feedback to SSRN


Paper statistics
Abstract Views: 4,843
Downloads: 698
Download Rank: 14,250
References:  19
Citations:  71

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo1 in 0.297 seconds