Financial Misreporting: Hiding in the Shadows or in Plain Sight?

It’s widely assumed that executives are less likely to inflate earnings at  high profile companies under a good deal of regulatory oversight. And yet it’s also widely known that managers in high profile companies have an incentive to overstate their company’s performance because of pressure from investors to meet or beat Wall Street estimates every quarter.

How should policymakers looking to curb accounting fraud reconcile these countervailing forces?

When it comes to embellishing corporate earnings, managers weigh the costs and benefits: mainly the probability and consequences of getting caught in an accounting scandal against the potential for a higher stock … Read more