101 research outputs found
The Economics of Fraudulent Accounting
No full textWe argue that earnings management and fraudulent accounting have important economic consequences. In a model where the costs of earnings management are endogenous, we show that in equilibrium, low-productivity firms hire and invest too much in order to pool with high productivity firms. This behavior distorts the allocation of economic resources in the economy. We test the predictions of the model using firm-level data. We show that during periods of suspicious accounting, firms hire and invest excessively, while managers exercise options. When the misreporting is detected, firms shed labor and capital and productivity improves. Our firm-level results hold both before and after the market crash of 2000. In the aggregate, our model provides a novel explanation for periods of jobless and investment-less growth. The Author 2007. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please email: [email protected]., Oxford University Press.
Institutions, Markets and Growth: A Theory of Comparative Corporate Governance
Get PDFTwo different financial systems with some opposing features have evolved in the advanced economies, namely the insider system and the outsider system. In this paper, we provide a theoretical framework where the features of the optimal governance system
are derived as a function of economy-wide parameters, such as the degree of development of markets and the quality of the institutions, and firm-specific parameters,
such as the productivity of its technology. Our results include the following: (1) For a
degree of relative development of markets below a threshold, internal governance systems dominate for all firms in the economy independent of productivity, (2) When the
development of markets in an economy is above that threshold, either system may emerge as optimal depending on the productivity of the technology. There are marked differences in the residual agency costs under the two systems when the scale of investment is large. It is shown that insider systems constitute the optimal governance system for technologies that are optimally implemented at a small scale while outsider systems dominate for technologies that are optimally implemented at large scales. These results provide a new argument for the potential convergence towards outsider systems based on technological growth
Why do only some Nasdaq firms switch to the NYSE? Evidence from corporate transactions
No full textEvery year only a small fraction of Nasdaq firms that are eligible to move to the NYSE actually choose to move. This is surprising as prior literature documents significant gains to listing on NYSE. Gains in visibility and liquidity associated with a move to NYSE reduce the firm's cost of capital. Consequently, firms are more likely to move to NYSE when they are raising external financing or engaging in acquisition activity. We study a set of corporate transactions - issue of debt, equity and involvement in acquisitions - for a group of Nasdaq firms that chose to move to the NYSE and a size and industry-matched control group over the period 1986-1998. We find that firms that move to the NYSE issue more debt and equity, and engage in more asset transactions following their move relative to control firms. Our results suggest that the listing decision of a firm is often not isolated, but rather related, to other important corporate objectives of the firms.Exchange listing Debt issues Acquisitions Cost of capital
Executive Option Exercise and Financial Misreporting. Journal of Banking and Finance 32:845–57
No full textAbstract Several recent papers document that the magnitude of potential gains from stock-based compensation is positively related to the likelihood of misreporting. In a sample of firms that announce restatements of their financial statements from 1997 to 2002, we examine whether managers realize these potential gains occurring from their accounting choices. After controlling for diversification needs and stock price impact, we find no significant evidence of higher option exercises by executives in the misreported years. However, for firms that are more likely to have made deliberate aggressive accounting choices, we find significant evidence of higher option exercises. For these firms, option exercises are higher by 20% to 60% in comparison to industry and size matched non-restating firms. Options exercises by executives are also increasing in the magnitude of the restatement as captured by the effect of the restatement on net income. These higher option exercises tend to be more pervasive and are not just confined to the CEO and CFO of the firm
The Economics of Fraudulent Accounting
Get PDFWe argue that earnings management and fraudulent accounting have important eco-
nomic consequences. In a model where the costs of earnings management are endoge-
nous, we show that in equilibrium, low productivity firms hire and invest too much
in order to pool with high productivity firms. This behavior distorts the allocation of economic resources in the economy. We test the predictions of the model using firm-
level data. We show that during periods of suspicious accounting, firms hire and invest
excessively, while managers exercise options. When the misreporting is detected, firms
shed labor and capital and productivity improves. Our firm-level results hold both be-fore and after the market crash of 2000. In the aggregate, our model provides a novel
explanation for periods of jobless and investment-less growth
Adecco SA's Acquisition of Olsten Corp. (201-068)
No full textIn the summer of 1999, Adecco SA, one of the world's leading staffing companies, was in the midst of attempting to acquire the staffing operations of Olsten Corp., a U.S. firm. This case analyzes the economics of the staffing industry, basic valuation, cross-border issues including tax arbitrage, valuation of minority interest, and the importance of financial health in merger negotiations
Journal of Business
No full textWe examine the determinants of debt issuance in 10 major currencies by large U. S. firms. Using the fraction of foreign subsidiaries and tests exploiting the disaggregated nature of our data, we find strong evidence that firms issue foreign currency debt to hedge their exposure both at the aggregate and the individual currency levels. We also find some evidence that firms choose currencies in which information asymmetry between domestic and foreign investors is low. We find no evidence that tax arbitrage, liquidity of underlying debt markets, or legal regimes influence the decision to issue debt in foreign currency.Division of Research at Harvard Business SchoolPamplin College of BusinessPublished versio
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