NBER

Markus Schmid

Swiss Institute of Banking and Finance
Unterer Graben 21
CH-9000 St. Gallen
Switzerland

E-Mail: markus.schmid@unisg.ch
Institutional Affiliation: University of St. Gallen

NBER Working Papers and Publications

March 2013Smokescreen: How Managers Behave When They Have Something To Hide
with Tanja Artiga González, David Yermack: w18886
We study financial reporting and corporate governance in 218 companies accused of price fixing. These firms engage in evasive financial reporting strategies, including earnings smoothing, segment reclassification, and restatements. In corporate governance, cartel firms favor outside directors likely to monitor inattentively due to low attendance, other board seats, and overseas residence. When directors resign, they are often not replaced, and auditors are rarely switched. Cartel firms have unusually low CEO turnover and rely on internal management promotions. Their managers exercise stock options faster than managers of other firms. Cartel firms are large donors to political candidates. While our results are based only upon firms engaged in price fixing, we expect that they should apply g...

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