Product Differentiation, Benchmarking, and Corporate Fraud

60 Pages Posted: 17 Jun 2019

See all articles by Audra L. Boone

Audra L. Boone

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

William Grieser

Texas Christian University

Rachel Li

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

Parth Venkat

Securities and Exchange Commission (SEC)

Date Written: June 6, 2019

Abstract

We find that product market differentiation is an economically meaningful and robust predictor of accounting fraud. Controlling for traditional measures of competition and large tariff reductions does not influence this finding. Thus, product differentiation appears to capture a unique relation between competition and fraud, which we posit is driven by the firm's external information environment. To help establish identification, we exploit product similarities with rivals issuing IPOs, as well as cross-sectional variation in firm complexity, institutional ownership, analyst coverage, and financial statement comparability. Our analysis suggests that lower product differentiation enhances external monitoring, which disciplines manager reporting behavior.

Keywords: corporate fraud, product markets, benchmarking, competition

JEL Classification: G30

Suggested Citation

Boone, Audra and Grieser, William and Li, Qingqiu and Venkat, Parth, Product Differentiation, Benchmarking, and Corporate Fraud (June 6, 2019). 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

William Grieser

Texas Christian University ( email )

Fort Worth, TX 76129
United States

Qingqiu 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)

Securities and Exchange Commission (SEC) ( email )

450 Fifth Street, NW
Washington, DC 20549-1105
United States

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