On Fraudulent Financial Practice and Competitive Discipline

21 Pages Posted: 21 Jul 2008 Last revised: 24 Apr 2009

See all articles by Hamid Beladi

Hamid Beladi

University of Texas at San Antonio - College of Business - Department of Economics

Sugata Marjit

Centre for Studies in Social Sciences, Calcutta; Indian Institute of Foreign Trade; City University of Hong Kong (CityU) - Department of Economics & Finance

Xinpeng Xu

Faculty of Business, Hong Kong Polytechnic University

Date Written: April 21, 2009

Abstract

Following the huge Enron scandal that rocked the financial system of the United States, many firms were asked to restate their accounts by the regulatory authorities. We provide a theoretical model of overstatement in which managers inflate actual profits to attract share capital and shareholders find it too costly to monitor such action. We completely characterize such equilibrium and argue that more competitive industries are likely to discourage such earning manipulations. We also show that in case only some firms in an industry engage in such malpractice, the margin of manipulation will be greater. However, greater entry will reduce the extent of overstatement.

Keywords: Restatements, Competition, Corporate Governance

JEL Classification: L1, G30

Suggested Citation

Beladi, Hamid and Marjit, Sugata and Marjit, Sugata and Xu, Xinpeng, On Fraudulent Financial Practice and Competitive Discipline (April 21, 2009). Available at SSRN: https://ssrn.com/abstract=1165202 or http://dx.doi.org/10.2139/ssrn.1165202

Hamid Beladi (Contact Author)

University of Texas at San Antonio - College of Business - Department of Economics ( email )

One UTSA Circle
P.O. Box 5636
San Antonio, TX 78249
United States
210-458-7038 (Phone)
210-458-7040 (Fax)

Sugata Marjit

Indian Institute of Foreign Trade ( email )

New Delhi
QUTUB INSTITUTIONAL AREA
NEW DELHI, 110016
India

Centre for Studies in Social Sciences, Calcutta ( email )

R 1, B.P. Township
Kolkata, West Bengal, India
Kolkata, West Bengal 700094
India

City University of Hong Kong (CityU) - Department of Economics & Finance ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

Xinpeng Xu

Faculty of Business, Hong Kong Polytechnic University ( email )

Hung Hom, Kowloon
Hong Kong

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
70
Abstract Views
671
rank
447,277
PlumX Metrics