Misrepresentation

Abstract: We track the fortunes of all 2,206 individuals identified as responsible parties for all 788 SEC and Department of Justice enforcement actions for financial misrepresentation from 1978 through September 30, 2006. Fully 93% lose their jobs by the end of the regulatory enforcement period. A majority explicitly are fired. The likelihood of ouster increases with the cost of the misconduct to shareholders and the quality of the firm's governance. Culpable managers also bear substantial financial losses through restrictions on their future employment, their shareholdings in the firm, and SEC fines. A sizeable minority (28%) face criminal charges and penalties, including jail sentences that average 4.3 years. These results indicate that the individual perpetrators of financial misconduct face significant disciplinary action.

Abstract: Despite the many undesirable outcomes of corporate misconduct, scholars have an inadequate understanding of corporate misconduct's causes and mechanisms. We extend the behavioral theory of the firm, which traditionally assumes away the possibility of firm impropriety, to develop hypotheses predicting that top management incentive compensation and poor organizational performance relative to aspirations increase the likelihood of financial misrepresentation. Using a sample of financial restatements prompted by accounting irregularities and identified by the U.S. Government Accountability Office, we find empirical support for both incentive and relative performance influences on financial statement misrepresentation.

Abstract: This article is about disclosure of quality. The question that it seeks to answer is: Does the free market offer enough incentive for business to disclose? The article concludes that whether information is of purely private value or not, more than the socially-optimal amount of disclosure takes place. The optimal policy is for the government to subsidize sale without disclosure. The article offers no support for the policy of mandatory disclosure. The results should be viewed with care, however, as they seem to depend on special features of the model, in particular the assumed impossibility of misrepresentation.

Abstract: In psychological assessment, we aim for the most accurate description of some cognitive or behavioral attribute In assessment involving self-reports, this objective is invariably haunted by the possibility of misrepresentation Certainly we would be sceptical of self-reports of intelligence, perhaps because of its universal desirability Among the few qualities typically rated as even more desirable than intelligence is having a good personality Thus it seems dangerous to ignore the possibility that at least some respondents systematically misrepresent their own personality