62 Pages Posted: 10 Mar 2013 Last revised: 10 Nov 2015
Date Written: November 9, 2015
We study financial reporting and corporate governance in 218 companies accused of price fixing. In corporate governance, cartel firms favor outside directors likely to monitor inattentively due to low attendance, other board seats, and overseas residence. When directors resign, they are often not replaced, and auditors are rarely switched. Cartel firms have unusually low CEO turnover and rely on internal management promotions. Their managers exercise stock options faster than managers of other firms. Cartel firms are large donors to political candidates. These firms engage in evasive financial reporting strategies, including earnings smoothing, segment reclassification, and restatements. While our results are based only upon firms engaged in price fixing, we expect that they should apply generally to all companies in which managers seek to conceal poor performance or wrongdoing.
Keywords: Cartels, price fixing, accounting fraud, boards of directors, corporate governance
JEL Classification: D43, G34, K42, L40, M43
Suggested Citation: Suggested Citation
Artiga González, Tanja and Schmid, Markus M. and Yermack, David, Smokescreen: How Managers Behave When They Have Something to Hide (November 9, 2015). NYU Working Paper No. FIN-13-002; University of St.Gallen, School of Finance Research Paper No. 2013/9. Available at SSRN: https://ssrn.com/abstract=2230771 or http://dx.doi.org/10.2139/ssrn.2230771
By Alex Edmans