Benchmarking Against the Performance of High Profile 'Scandal' Firms

32 Pages Posted: 15 Sep 2006

See all articles by Emre Karaoglu

Emre Karaoglu

Columbia University - Columbia Business School

Tatiana Sandino

Harvard Business School - Accounting and Control

Randolph P. Beatty

University of Southern California - Leventhal School of Accounting

Date Written: July 10, 2006

Abstract

In recent years, several high profile firms engaged in accounting fraud that resulted in severe investor losses and erosion of trust in the capital markets. We examine high profile accounting "scandals" prosecuted by the Securities and Exchange Commission. Unlike most prior literature, we focus on the negative consequences that these "scandal firms" caused on competing firms. We find preliminary evidence that the compensation earned by executives in competing firms decreased as scandal firms performed better via inflated results. We also find that competing firms managed earnings more when their performance was lagging behind the performance of the "scandal firm".

Keywords: relative performance evaluation, benchmarking, earnings management, executive compensation

JEL Classification: M41, M52

Suggested Citation

Karaoglu, Nuri and Sandino, Tatiana and Beatty, Randolph P., Benchmarking Against the Performance of High Profile 'Scandal' Firms (July 10, 2006). AAA 2007 Financial Accounting & Reporting Section (FARS) Meeting Papers, Available at SSRN: https://ssrn.com/abstract=930749 or http://dx.doi.org/10.2139/ssrn.930749

Nuri Karaoglu (Contact Author)

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Tatiana Sandino

Harvard Business School - Accounting and Control ( email )

367 Morgan Hall
Soldiers Field
Boston, MA 02163
United States
617-495-0625 (Phone)

Randolph P. Beatty

University of Southern California - Leventhal School of Accounting ( email )

Los Angeles, CA 90089-0441
United States
213-740-4838 (Phone)

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