Smokescreen: How Managers Behave When They Have Something to Hide

53 Pages Posted: 15 Mar 2013

See all articles by Tanja Artiga González

Tanja Artiga González

VU University Amsterdam

Markus 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: March 2013

Abstract

We study financial reporting and corporate governance in 218 companies accused of price fixing. These firms engage in evasive financial reporting strategies, including earnings smoothing, segment reclassification, and restatements. 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. 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.

Suggested Citation

Artiga Gonzalez, Tanja and Schmid, Markus and Yermack, David, Smokescreen: How Managers Behave When They Have Something to Hide (March 2013). NBER Working Paper No. w18886. Available at SSRN: https://ssrn.com/abstract=2233778

Tanja Artiga Gonzalez (Contact Author)

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, North Holland 1081 HV
Netherlands

Markus 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

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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