The Press as a Watchdog for Accounting Fraud
Gregory S. Miller
Associate Professor
Graduate School of Business Administration冬季女装
Harvard University
Boston, MA 02163
gmiller@hbs.edu
First Version: July 2003
This Version: August 2005
All comments welcomed.
I thank Jeff Abarbanell, Mary Barth, Sudipta Basu, Brian Bushee, Bob Kaplan, Stu Gilson, Cristi Gleaso
n, Paul Healy, Pat Hopkins, Jack Hughes, Amy Hutton, Bruce Johnson, Michael Maher, Maureen McNichols, Doug Skinner, Greg Waymire and Joe Weber as well as workshop participants at Boston College, Emory University, Harvard Business School, The Ohio State University, University of Iowa, the 2004 Duke/UNC Fall Accounting Camp, the 2003 Stanford Summer Camp and veral anonymous members of the press for comments on earlier versions of this paper. I thank Sarah Erikn and Anne Karshis for rearch assistance. I am grateful for the funding of this rearch by the Harvard Business School.
The Press as Watchdogs for Accounting Fraud
ABSTRACT
This paper investigates the press’ role as a monitor or “watchdog” for accounting fraud. I first examine whether there are systematic patterns in the firms for which the press publishes an article regarding accounting fraud. My findings are consistent with the press trading off costs and benefits in determining the investigation and publication criteria. Specifically, the press is more likely to write articles regarding large firms, that are heavily followed by analysts and that receive extensive prior press coverage. The factors indicate there is a high level of interesting in the firm, thus increasing
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benefits of an article, and that information should be available about the firm, reducing costs. I also find the press is more likely to write an article if there are many individuals involved in the fraud, consistent with an incread chance of receiving an inside tip (and thus lower costs to investigate). Further, articles are more likely if the frauds that are larger, involve theft by managers and/or include a prior publicly misleading statement. All of the factors allow the press to frame the article in a more nsational and entertaining manner, thus increasing the benefits of publication.
An examination of the sources of information ud indicates that press relies on a mix of private and public information. Most commonly, the press makes the ca for accounting issues independent of other public information intermediaries. However, the press also frequently cites analysts, auditor changes and lawsuits as a source for allegations of accounting malfeasances. The analys suggest that reporters who specialize in business analys are more likely to write articles that independently make the ca for a business issue, while non-specialist are more likely to repeat information garnered from other information intermediaries.
耒耜Market tests indicate that the articles have information content to market participants. Articles relying on press bad analys have a significantly greater reaction than do tho relying on other information intermediaries, suggesting that in tho cas the press has prented information that i黄柏树皮的作用与功效
s not known by the market. In either ca, the press has provided a watchdog role by more broadly disminating an accounting concern.
1. Introduction
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This paper studies the press’ role as a monitor or “watchdog” for publicly identifying accounting fraud. First, I examine when the press is most effective as a watchdog by studying the impact of firm and fraud characteristics in determining whether the press alleges accounting malfeasances prior to an admission by the firm or SEC. Second, I study the process of watchdog reporting by investigating the information sources ud to develop accounting malfeasances stories, the type of press most likely to publish the stories and the relation between information sources and specialization in business reporting by the author/publication. Finally, I determine whether the articles provide new information to the stock markets by examining the market respon to articles alleging malfeasances. The evidence provided by this study contributes to our understanding of the press’ role as an information intermediary in the capital markets and society by indicating when the press acts as a monitor for accounting malfeasances, how they go about this monitoring, and whether their monitoring provides uful information to the market.
3月旅游The watchdog role is often cited as one of the most important functions of the press in contributing to society (Serrin and Serrin 2002; Islam 2002; Djankov, Mcliesh, Nenova and Shleifer 2002; Dyck and Zingales 2002). Accounting frauds are a significant event in the business world, suggesting they prent a good opportunity for the business press to undertake a monitoring function and fulfill a societal role. However, the press faces conflicting incentives to publish articles alleging fraud. On the positive side, frauds are often filled with conflict, drama and deviant behavior, all of which are considered components of a compelling story (Jamieson and Campbell, 2001). Compelling and entertaining stories lead to a larger reader ba and a related increa in revenues from subscriptions and advertising, creating an incentive to
aggressively fulfill the watchdog role. On the negative side, uncovering accounting fraud is likely to be time consuming, costly and lead to many dead ends. Further, the press is also part of the market it is meant to cover. As such, there may be incentives not to harm tho markets due to relations with affiliated companies, advertirs, or simply uptting the reader-ba (Herman, 2002; Jamieson and Campbell, 2001). Members of the press (both publishers and reporters) must trade-off the costs and benefits when deciding whether and how to identify accounting fraud.
I u Accounting, Auditing and Enforcement Releas (AAER) to identify a sample of firms that were
sanctioned by the SEC for accounting malfeasances. U of the AAER allows me to examine a sample of firms widely believed to have engaged in accounting fraud and provides objective measures of the characteristics of the fraud undertaken, such as the magnitude and types of infractions. My final sample consists of 263 firms that have committed a wide range of accounting violations. I find that the press publishes articles regarding accounting fraud prior to a public acknowledgment by the firm or SEC for 75 (29%) of the firms.
I first examine how characteristics of the firm and fraud impact the likelihood of an article alleging fraud. The goal of this analysis is to provide evidence regarding how the press trades of the cost and benefits of acting as a watchdog. This evidence enhances our understanding of when the press assists in monitor firms activities. I predict that firms with a strong information environment are more likely to have articles written regarding their accounting fraud due to the obvious high interest in the firms, which suggests there will be interest in a story, and to the lower cost of investigating firms with a rich information environment. Consistent with the predictions, I find that firms with a high analyst following, a large number of general press
articles or greater market value of equity are statistically more likely to have their accounting violations first identified in the press.
The press industry generates much of its income from advertising revenue and so may be less likely to be critical of firms that are currently large advertirs or have the potential to be in the future. However, I find no evidence that the press is less likely to write articles regarding firms in high advertising industries.
I also expect aspects of the fraud will impact whether the press publishes a fraud identifying article. Reporters often indicate that inside leaks are crucial in the reporting process as they both provide a strong indication that a problem exists and often can point the reporter towards other sources of information. Thus, the inside leaks greatly reduce the expected costs of investigative reporting. As a test of this reduced costs, I examine whether the number of people involved in the fraud impacts the likelihood of an article. I find that that this variable is highly correlated with an article being published.
移动热点Frauds that are more egregious are likely to make for a more interesting story. Accordingly, I examine whether frauds that involve a greater dollar magnitude are more likely to be identified in an article. Again, the evidence finds strong support for this prediction.
The press prefers stories that can be personalized and involve controversy, conflict and deviant beh
avior. Frauds that involve public misleading statements (such as a press relea claiming a large new contract and related accounting malfeasances to support the press relea) are likely to both attract the press’ attention, thus reducing arch costs, and be of interest to readers of the original disclosure, increasing the benefit. Consistent with this, I find articles are much more likely if the AAER alleges the company provided a material publicly misleading statement or filing.蒸包子发面的方法
