The Strategic Background to Corporate Accounting Scandals

Long Range Planning

Volumn 39, Issue 4, 2006, Pages 361-383

  Grant, Robert M ^a   Visconti, Massimo ^a  

^a NONE

Author keywords

[No Author keywords available]

Indexed keywords

FINANCE; MANAGEMENT; MERGERS AND ACQUISITIONS; STRATEGIC PLANNING;

ACCOUNTING SCANDALS; STRATEGIC MANAGEMENT;

COST ACCOUNTING;

CORPORATE STRATEGY; DEBT;

EURASIA; EUROPE; NORTH AMERICA; UNITED STATES;

EID: 33751528301     PISSN: 00246301     EISSN: None     Source Type: Journal    
DOI: 10.1016/j.lrp.2006.09.003     Document Type: Article

References (25)

1. General Accounting Office. Financial Statement Restatements: Trends, Market Impacts, Regulatory Responses, and Remaining Challenges (2003) GAO-03-178, Washington, DC
2. "Greed is good" was spoken by Gordon Gecko in the 1987 film Wall Street.
3. Congressional record, July 25, 2002 (House), Page H5462-H5480.
4. For example, fraudulent billing by HealthSouth involved some $2.5bn between 1997 and 2003 and is believed to have been prevalent at the company since 1986. Enron's restatement announcement of October 2001 concerning its off-balance sheet limited partnerships related to financial years all the way back to 1997.
5. In particular, the FRC would oversee the new Professional Oversight Board for Accountancy together with the Auditing Practices Board and the Accountancy Investigation and Discipline Board.
6. Enriques L. Bad Apples, Bad Oranges: A Comment from Old Europe on Post-Enron Corporate Governance Reforms. Wake Forest Law Review 38 (2003-2003). http://ssrn.com/abstract=464241
7. Michael C. Jensen and Kevin J. Murphy, Remuneration: Where we've been, how we got to here, what are the problems, and how to fix them, European Corporate Governance Institute, Finance Working Paper N°. 44/2004, p31, (July 2004).
8. John Coffee (A Theory of Corporate Scandals: Why the US and Europe Differ, Working Paper No. 274, pp. 6-7, Center for Law and Economic Studies, New York, March 2005) reports that instead of holding rainy-day reserves to smooth earnings, "... managers in the late 1990s appear to have characteristically 'stolen' earnings from future periods in order to create an earnings spike that potentially could not be sustained."
9. Erickson Merle, Hanlon Michelle and Maydew Edward, Is There a Link Between Executive Compensation and Accounting Fraud? University of Chicago Working paper (October 3, 2003).
10. Shane A. Johnson, Harley E. Ryan Jr. and Yisong S. Tian, Executive Compensation and Corporate Fraud, Ourso College of Business Administration Working Paper, Louisiana State University (May 2004), available from the Social Science Research Network eLibrary at: http://ssrn.com/abstract=395960.
11. Jap Efendi, Anup Srivastava, Edward P. Swanson, Why do corporate managers misstate financial statements? The role of option compensation, corporate governance and other factors, Unpublished working paper, Mays Business School, Texas A&M U., (May 17 2004), College Station, Texas, available from the Social Science Research Network eLibrary at: http://papers.ssrn.com/abstract=547922.
12. Agrawal A., and Chadha S. Corporate Governance and Accounting Scandals. Journal of Law and Economics (October 2005)
13. Coffee.
14. Michael C. Jensen, Kevin J. Murphy, Remuneration: Where we've been, 'ow we got to here, what are the problems, and how to fix them, European Corporate Governance Institute, Finance Working Paper N°. 44/2004, p44, (July 2004).
15. Ibid, p45.
16. Grant R.M. Strategic Planning in a Turbulent Environment: Evidence from the Oil and Gas Majors. Strategic Management Journal 24 (June 2003) 491-518
17. Huron Consulting Group 2004 Annual Review of Financial Reporting Matters shows that over 2000-05, financial restatements were most frequent in four sectors: manufacturing; finance, insurance and real estate; transportation, communication, electricity and gas; and software. Given the smaller number of companies in the last two sectors, it would seem that these sectors show the highest propensity for restatement.
18. We did not attempt to take account of management intent in financial misreporting. However, Fred Gertsen, Cees van Riel and Guido Berens (Avoiding Reputation Damage in Financial Statement Restatements, Long Range Planning, this issue) show that intent is a critical determinant of the impact of financial restatements on stock market valuation.
19. Alstom Annual Report, 1998-99. Strategic developments, pp 6-7.
20. In general internationalisation is associated with superior profitability, see: G. S. Yip, A. M. Rugman and A. Kudina, International Success of British Companies, Long Range Planning, 39, 241-264.
21. Reed J. Values and Corporate Responsibility: a Personal Perspective. In: Lorsch J.W., Berlowitz L., and Zelleke A. (Eds). Restoring Trust in American Business (2005), MIT Press, Cambridge, MA 35-42
22. Miller D. The Icarus Paradox: How Exceptional Companies Bring About Their Own Downfall. Business Horizons (January-February 1992) 24-35
23. Skeel D. Icarus in the Boardroom: The Fundamental Flaws in Corporate American and Where They Came From (2005), Oxford University Press
24. Conversely, sound strategies that are effectively communicated to investors may provide the basis for a trusting relationship between a company and its shareholders that safeguards against accounting manipulation. See Pietro Mazzola, Claudia Gabbioneta and Davide Ravasi, How to Build Reputation in Financial Markets, Long Range Planning, doi:10.1016/j.lrp.2006.09.001; Miles Gietzmann, (Disclosure of Timely and Forward Looking Statements and Patterns of Major Institutional Ownership, Long Range Planning, doi:10.1016/j.lrp.2006.09.006, 39, 409-427 shows that reporting of strategy and plans encourages stability of institutional investment in certain sectors.
25. Reed, op cit, p38.