Product Market Similarity, Benchmarking, and Corporate Fraud

54 Pages Posted: 17 Jun 2019 Last revised: 6 Dec 2022

See all articles by Audra L. Boone

Audra L. Boone

Texas Christian University - M.J. Neeley School of Business; European Corporate Governance Institute (ECGI)

William Grieser

Texas Christian University ; Texas Christian University - M.J. Neeley School of Business

Rachel Li

University of Alabama - Department of Economics, Finance and Legal Studies

Parth Venkat

University of Alabama - Department of Economics, Finance and Legal Studies

Date Written: December 3, 2022

Abstract

We document a strong negative relation between firms' product market similarity to their rivals and their observed fraud rate. This disciplining effect is larger than most documented fraud predictors and remains virtually unchanged after controlling for those predictors and traditional measures of competition. By exploiting variation from rivals' newly available public disclosures, as well as cross-sectional variation in firm complexity, institutional ownership, and analyst coverage, we show that the effect is most likely driven by firms' external information environment. Our analyses suggest that greater product similarity enhances the external information environment, which improves external monitoring and disciplines manager reporting behavior.

Keywords: Corporate Fraud, Product Market Competition, Product Similarity, Benchmarking, Corporate Governance

JEL Classification: G30, M41, G34

Suggested Citation

Boone, Audra and Grieser, William and Li, Rachel and Venkat, Parth, Product Market Similarity, Benchmarking, and Corporate Fraud (December 3, 2022). Sixth Annual Conference on Financial Market Regulation, Available at SSRN: https://ssrn.com/abstract=3070375 or http://dx.doi.org/10.2139/ssrn.3070375

Audra Boone

Texas Christian University - M.J. Neeley School of Business ( email )

Fort Worth, TX 76129
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

William Grieser

Texas Christian University ( email )

Fort Worth, TX 76129
United States

Texas Christian University - M.J. Neeley School of Business ( email )

Fort Worth, TX 76129
United States

Rachel Li

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

P.O. Box 870244
Tuscaloosa, AL 35487
United States

Parth Venkat (Contact Author)

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

P.O. Box 870244
Tuscaloosa, AL 35487
United States

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