A new study shows that after one company in an industry is found to have misstated its earnings, others in its industry often followed suit and began massaging their own numbers; this ultimately results in their own restatements.
1. Why were the regulatory actions in the study so intriguing and what did they indicate?
2. If bigger and more visible companies did the book-cooking, what pattern did this show?
3. What events and risks did the study show led to deterrence of “copycat earnings manipulations?”
4. What is the biggest problem when conducting this type of study?
Morgenson, G. (2015). Earnings Misstatements Come in Bunches, Study Says. The New York Times, Oct. 23 (Retrievable online at http://www.nytimes.com/2015/10/25/business/earnings-misstatements-come-in-bunches-study-says.html)