|
||||
|
||||
The Economics of Fraudulent Accounting
Simi Kedia Rutgers University, Newark, School of Business-Newark, Department of Finance & Economics Thomas Philippon New York University - 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.
JEL Classifications: D21, E22, E24, G3 Working Paper SeriesDate posted: March 23, 2005 ; Last revised: March 23, 2005Suggested CitationContact Information
|
|
||||||||||||||||||||||||
© 2009 Social Science Electronic Publishing, Inc. All Rights Reserved. Terms of Use Privacy Policy
This page was served by apollo2 in 0.141 seconds.