Managers trying to cover up price-fixing adopt telltale accounting and governance strategies to fool regulators, analysts and investors, a study shows.
Three business professors looked at 216 U.S. companies accused of cartel-like behavior. In their accounting, such companies smooth out reported earnings from period to period and file a lot of financial restatements. In governance, "cartel firms favor outside directors who are likely to be inattentive monitors" because they live abroad or are busy with other boards.
"When directors resign," the professors add, "they are often not replaced, and new auditing firms are engaged significantly less often than expected."
The professors expect the same sort of behavior at any company "in which managers seek to conceal poor performance or personal wrongdoing."
"Smokescreen: How Managers Behave When They Have Something To Hide," Tanja Artiga Gonzalez, Markus Schmid and David Yermack, National Bureau of Economic Research Working Paper 18886
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