Value Destruction and Financial Reporting Decisions

Posted: 20 Jan 2007

See all articles by John R. Graham

John R. Graham

Duke University; National Bureau of Economic Research (NBER)

Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Shivaram Rajgopal

Columbia Business School

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Abstract

The comprehensive survey reported here allowed analysis of how senior U.S. financial executives make decisions related to performance measurement and voluntary disclosure. Chief financial officers were asked what earnings benchmarks they cared about and which factors motivated executives to exercise discretion—even sacrifice economic value—to deliver earnings. These issues are crucially linked to stock market performance. The results show that the destruction of shareholder value through legal means is pervasive, perhaps even a routine way of doing business. Indeed, the amount of value destroyed by companies striving to hit earnings targets exceeds the value lost in recent high-profile fraud cases.

Keywords: Financial Statement Analysis, Accounting and Financial Reporting Issues; Equity Investments, Fundamental Analysis and Valuation Models; Corporate Governance

Suggested Citation

Graham, John Robert and Harvey, Campbell R. and Rajgopal, Shivaram, Value Destruction and Financial Reporting Decisions. Financial Analysts Journal, Vol. 62, No. 6, pp. 27-39, November/December 2006, Available at SSRN: https://ssrn.com/abstract=953059

John Robert Graham (Contact Author)

Duke University ( email )

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National Bureau of Economic Research (NBER)

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Campbell R. Harvey

Duke University - Fuqua School of Business ( email )

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Durham, NC 27708-0120
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HOME PAGE: http://www.duke.edu/~charvey

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

Shivaram Rajgopal

Columbia Business School ( email )

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New York, NY 10027
United States

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