Smokescreen: How Managers Behave When They Have Something to Hide

62 Pages Posted: 10 Mar 2013 Last revised: 10 Nov 2015

Tanja Artiga González

VU University Amsterdam

Markus M. Schmid

University of St. Gallen - Swiss Institute of Banking and Finance; University of St. Gallen - School of Finance

David Yermack

New York University (NYU) - Stern School of Business

Date Written: November 9, 2015

Abstract

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

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

Tanja Artiga Gonzalez

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, North Holland 1081 HV
Netherlands

Markus M. Schmid

University of St. Gallen - Swiss Institute of Banking and Finance ( email )

Rosenbergstrasse 52
St. Gallen, 9000
Switzerland

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

David Yermack (Contact Author)

New York University (NYU) - Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY 10012-1126
United States
212-998-0357 (Phone)
212-995-4220 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~dyermack

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