Bebchuk, L., Cohen, A., & Ferrell, A. (2008). What matters in corporate governance?. The Review of financial studies, 22(2), 783-827.
Bebchuk, Cohen, and Ferrell (2008) assert corporate governance can have a significant impact on shareholders. The scholars introduce their study by asking a fundamental question regarding specific provisions that contribute heavily to the relationship between corporate governance and a company’s value. Bebchuk, Cohen, and Ferrell (2008) investigate a total of 24 provisions the Investor Responsibility Research Center (IRRC) pursue and incorporated in Gompers, Ishii, and Metrick (2003) governance index with the aim of finding out their relative importance. Bebchuk, Cohen, and Ferrell (2008) found out that increases in the index level resulted in substantial reductions in company valuation and huge negative abnormal returns for the period stretching from 1990 to 2003. Overall, the study’s assertion that corporate governance affects stakeholders, particularly firm valuation, substantially provides relevant background to my research question. Particularly, Bebchuk, Cohen, and Ferrell (2008) detail important provisions for disclosure which I found useful for supporting my suggestions regarding legal measures that have been advanced to promote transparency and accountability in corporate reporting.
Chance, D., Cicon, J., " Ferris, S. P. (2015). Poor performance and the value of corporate honesty. Journal of Corporate Finance, 33, 1-18.
Chance, Cicon, and Ferris (2015) argue that when many corporate institutions perform below expectations, they often become defensive, shifting the blame to other parties such as rival firms, the government, labor unions, prevailing conditions in their industry, or the economy as a whole. Chance, Cicon, and Ferris (2015) accuse many CEOs of deliberately blaming other parties for the problems they are faced with even when the problems arise within the company. The researchers provide a background to their study by drawing a sharp contrast between corporations that publicly acknowledge and accept crises they cause and those that fail to acknowledge blame and thus attribute it to other parties. Although the researchers document that some firms (e.g. Apple) publicly acknowledge and offer an apology for their poor performance, the majority (e.g. Hostess) blame other parties for their distress. To explore this issue in depth, Chance, Cicon, and Ferris (2015) reviewed firms that had recently issued statements ascribing blame for their poor performance to either themselves or other external factors. The findings of the examination revealed that both corporations face poor company-specific performance before issuing statements, showing that ascribing blame to external factors is dishonest. The study further established that firms that blame themselves exhibit better performance after announcement while those that blame others continue to perform poorly. Overall, the study’s suggestion that managerial honesty and truthfulness benefit shareholders present a compelling reason to hold organizations accountable for company-specific poor performance. Particularly, the researchers’ distinction between firms that acknowledge blame and those that deliberately attribute it to external parties provide a relevant context for my own interest in the intricate link between truth and business, and would support my argument that many companies that accept their mistakes, unlike those that ascribe blame, are more likely to build their reputation and achieve stronger future performance.
Dyck, A., Morse, A., " Zingales, L. (2010). Who blows the whistle on corporate fraud?. The Journal of Finance, 65(6), 2213-2253.
Dyck, Morse, and Zingales (2010) point out that a high prevalence of large corporate frauds uncovered in the U.S. at the start of the 21st century coupled with the failure by existing institution mandated with uncovering fraud instigated immediate overhaul of existing regulatory framework. Dyck, Morse, and Zingales (2010) argue that quick reactions from the political class inhibited any empirical analysis to assess the premises of the existing law. Their study commences with a number of thought-provoking questions. Which parties blow the whistle on fraudulent activities in corporations? What motivates them? Dyck, Morse, and Zingales (2010) analyzed all corporate fraud cases reported in the U.S. for the period stretching from 1996 to 2004. The study revealed that primary actors that bring corporate fraud to like include nontraditional players (e.g. workers, media, and industry regulatory authorities) rather than standard corporate governance actors such as investors, SEC, and auditors. The researchers attribute this pattern to varied access to information and incentives (monetary and reputational). This study’s finding that nontraditional actors are the primary whistleblowers paints a clear picture of new whistleblowing patterns. Dyck, Morse, and Zingales (2010) uncover factors that influence various actors to report corporate fraud relates to my research question and, will allow me to argue how whistleblowing promotes truth in business.
Hoberg, G., " Lewis, C. (2013). Do Fraudulent Firms Engage in Disclosure Herding?. Available at SSRN.
Hoberg and Lewis (2013) argue that the need to accomplish certain objectives (e.g. accessing low-cost capital) coupled with the tension to disclose to the Securities and Exchange Commission (SEC) creates two opposing forces concerning how companies may structure their qualitative disclosure, consequently allowing managers more freedom to decide the amount of information to disclose. Hoberg and Lewis (2013) identify two new assertions regarding how potentially fraudulent firms make strategic choices on how to structure their qualitative disclosure. First, the companies are incentivized to engaging in herding with other firms with the aim of escaping detection. Second, they are incentivized to locally “inter-herd” with the same comrades on certain areas of the reporting in a manner indicative of a desire to accomplish fraud-driven goals. The researchers analyzed company disclosures and compared them across companies compliant with SEC enforcement actions. The results of the analysis indicate stronger support and moderate support for the two assumptions. Overall, the two assumptions advanced in this research generate greater insights into “smart” ways through which fraudulent firms engage in disclosure herding. Most importantly, Hoberg and Lewis (2013) illuminate how firms employ complexity to possibly conceal fraud-oriented activities which will support my argument that firms employ many innovative ways to potentially conceal fraudulent activities in their 0-K MD"A disclosure.
Jerry Useem, J. (December 20, 1999). The Art of Lying. Fortune Magazine. Accessed on https://money.cnn.com/magazines/fortune/fortune_archive/1999/12/20/270983/index.htma
In this news article, Useem argues that a great deal of entrepreneurs tells “strategic misrepresentations” or “white lies” in order to get their startups off the ground. Although Useem acknowledges the idea that many people tend to accept and even enjoy these “small deceptions as clever gamesmanship,” she observes that the use of dubious means when negotiating to establish a business is unethical it is entirety. Useem opens his discussion with a fascinating account of Kathy Taggares’ company, K.T.'s Kitchens, which he argues became successful due to Taggares’ fraudulent misrepresentation of her employer, frozen-food maker Chef Ready Foods. Taggares disguised herself as her employer’s representative to not only negotiate a $5 million purchase of Marriott International’s salad dressing factories but also close the deal which helped her establish her firm that has a 350-member staff today. The author then outlines a number of cases detailing how entrepreneurs have used white lies to establish successful startups, including Telegroup, Borland International, and Hallmark. Throughout the paper, Useem focuses hugely on the distinction between personal ethics (deliberately misleading, taking advantage of, or stealing from someone) and gaming ethics (dissimulation and bluffing without calling an individual’s moral probity into question). Overall, the article’s argument that the underlying motive of entrepreneurship is playing outsides the established rules offers a sound explanation to a problem that evokes a lot of debate. Useem’s distinction between personal and gaming ethics provides greater insights into the hallowed role of lying in business.
