Benchmarking Against the Performance of High Profile 'Scandal' Firms
32 Pages Posted: 15 Sep 2006
Date Written: July 10, 2006
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
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