Competition, Capital Market Feedback, and Earnings Management

Download or read book Competition, Capital Market Feedback, and Earnings Management written by Jongsub Lee and published by . This book was released on 2016 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using economic deregulation as a quasi-natural experiment for increasing product market competition, we find increases in earnings manipulation and accounting frauds following deregulation. This “dark-side” of product market competition is particularly evident for deregulated firms in high market-to-book industries, where we find evidence of short-termism in the capital market. We further find that firms in these industries, if actively manage earnings, tend to make more acquisitions and have higher survival rates. Overall, our results are largely consistent with Shleifer (2004), who predicts an important interplay between product market competition and capital market valuation feedback that could induce misbehaving incentives among firms in competitive industries.