Accounting Essay Smaple：Accounting Research The Press as a

Accounting Essay ：Accounting Research The Press as a Watchdog for Accounting Fraud

ABSTRACT
This paper investigates the press’s role as a monitor or “watchdog” for
accounting fraud. I find that the press fulfills this role by rebroadcasting
information from other information intermediaries (analysts, auditors, and
lawsuits) and by undertaking original investigation and analysis. Articles based
on original analysis provide new information to the markets while those that
rebroadcast allegations from other intermediaries do not. Consistent with a
dual role for the press, I find that business-oriented press is more likely to
undertake original analysis while nonbusiness periodicals focus primarily on
rebroadcasting. I also investigate the determinates of press coverage, finding
systematic biases in the types of firms and frauds for which articles are published.
In general, the press covers firms and frauds that will be of interest
to a broad set of readers and situations that are lower cost to identify and
investigate.
∗Harvard University. I thank an anonymous referee, Jeff Abarbanell, Mary Barth, Sudipta
Basu, Brian Bushee, Fabrizio Ferri, Stu Gilson, Cristi Gleason, Michelle Hanlon, Paul Healy,
Jack Hughes, Amy Hutton, Bruce Johnson, Bob Kaplan, Tom Lys, Michael Maher, Maureen
McNichols, Doug Skinner, RossWatts, GregWaymire, and JoeWeber as well as workshop participants
at Boston College, Emory University, Harvard Business School, Massachusetts Institute
of Technology, Notre Dame University, The Ohio State University, University of Iowa, University
of Michigan, University of Texas-Austin, the 2004 Duke/UNC Fall Accounting Camp, and
the 2003 Stanford Summer Camp, and several anonymous members of the press for comments
on earlier versions of this paper. I thank Sarah Eriksen, Anne Karshis, and Kathleen Ryan for
research assistance. I am grateful for the funding of this research by the Harvard Business
School.

1. Introduction
This paper examines the press’s role as an early information intermediary
in the public identification of corporate financial malfeasances. Prior
literature regarding the press is limited and presents a conflicting view of its
effectiveness as an information intermediary. On the one hand, there are
arguments that the press caters to the lowest common denominator, does
not provide in-depth research or analyses, and focuses on sensationalizing issues
in order to sell papers (Jensen [1979], Core, Guay, and Larcker [2005],
DeAngelo, DeAngelo, and Gilson [1994, 1996]). On the other hand, there
is evidence that a free media is related to country-level economic growth
and that pressure created by press coverage can play an important role in
the corporate governance of firms (Djankov et al. [2002], Dyck and Zingales
[2002a], Dyck, Volchkova, and Zingales [2005]). The later studies suggest#p#分页标题#e#
the press plays an important informational role, but do not examine how
this is achieved. While a few studies do examine the impact of specific information,
they have focused on rebroadcasting of information created by
management or other information intermediaries (Huberman and Regev
[2001], Dyck and Zingales [2003], Dyck, Volchkova, and Zingales [2005]).
Thus, even for studies that suggest the press is an important informational
source, there is limited evidence regarding how the press fulfills the informational
role and no evidence regarding whether the press provides new
information.
In this paper I use a sample of firms whose accounting was challenged
by the Securities and Exchange Commission (SEC) to examine whether
the press is involved in the early public identification of an accounting
issue. Further, I study whether the press directly identified the issue or is
rebroadcasting information provided by more traditional intermediaries
(analysts, auditors, and legal institutions). Finally, I examine whether the
press is systematically biased towards covering certain types of firms and
frauds. Combined, these analyses contribute to the literature by providing
a more complete understanding of the press’s role as an information intermediary
in financial markets.
I use accounting, auditing, and enforcement releases (AAER) to identify
a sample of firms that were sanctioned by the SEC for accounting malfeasances.
Use of AAER allows me to examine a sample of firms widely believed
to have engaged in accounting fraud and provides objective measures of the
characteristics of the fraud, such as the magnitude and nature of infractions.
Mysample consists of 263 firms that have committed a wide range of accounting
violations. I find that the press publishes articles regarding accounting
fraud prior to a public acknowledgment by the firm or SEC for 75 (29%) of
the firms.
These 75 articles indicate that the press is involved in the early public dissemination
of an accounting issue, suggesting they do fulfill an information
intermediary role. I analyze the content of the articles and use market tests to
investigate whether the press is providing “original” information to the markets
or simply rebroadcasting information provided by other information
PRESS AS WATCHDOG 1003
intermediaries. My results indicate that both occur. My first analysis examines
the sources used to support the article. Many articles indicate the press
undertook original “investigative” reporting by analyzing a mix of information,
often including publicly available documents, to create its own
allegation of accounting misdeeds. However, other articles refer to traditional
information intermediaries, such as analysts, litigation/court actions,
and auditor changes, suggesting the press treats rebroadcasting as a legitimate#p#分页标题#e#
information role. Further supporting a dual role in the press, I find
evidence that press outlets and writers that specialize in business reporting
are more likely to provide original stories, while local papers and generalists
are more likely to rebroadcast existing information.
I next examine whether the articles provide incremental information to
capital market participants. I perform this analysis by informant category: reporter
original, analysts, auditors, and law. Prior work has argued that press
coverage is important due to the pressure it places on management (Dyck
and Zingales [2002a], Dyck, Volchkova, and Zingales [2005]). If press coverage
per se is informative, I would expect a negative response to all article
categories. Since reporter-generated analysis provides new information, I
predict a greater response to such articles. I find that the response is greater
for articles based on reporter analysis than for those that rebroadcast from
other information intermediaries. After controlling for publication type,
the response to reporter investigation is approximately −12.6%, while the
response to rebroadcasting articles is not significantly different from zero.
These findings show that in many cases the press develops new information
for the markets, suggesting an important role as an independent monitor
or information intermediary in financial markets. However, it provides no
support for an informational role when rebroadcasting from other information
intermediaries. Of course, it is still possible that this rebroadcasting
plays an important role in attracting the attention of entities that may take
actions (such as regulatory or consumer groups), consistent with political
costs and monitoring suggestions in prior literature (Watts and Zimmerman
[1986], Dyck and Zingales [2002a]).1
Having established that the press plays a role in the early identification
of fraud, I examine how characteristics of the firm and fraud impact the
likelihood of an article alleging fraud. The goal of this analysis is to provide
evidence regarding when the press acts as a monitor of firms’ activities. My
predictions are based on the press trading off the long-term pecuniary cost
and benefits of acting as a watchdog.
I predict that firms with high information visibility are more likely to have
articles written regarding their accounting fraud due to the obvious high
interest in these firms, which suggests there will be interest in a story, and to
1 It is important to note that the tests are designed to exclude the period when the rebroadcasted
information was initially excluded. Thus, my findings are not suggesting that these other
sources lack credibility in general or even are less credible than the press as a source for allegations.
Rather, the results suggest that there is no incremental reaction when these allegations#p#分页标题#e#
are made broadly public through the press.
1004 G. S. MILLER
the lower cost of investigating firms with a rich information environment.
Consistent with these predictions, I find that firms with a large number of
general press articles or greater market value of equity are more likely to
have their accounting violations first identified in the press. However, I find
no evidence that greater analyst following increases the likelihood of an
article.
Audit changes are public events that draw attention to a firm. They also
provide the basis for beginning a story regarding the firm’s accounting. Due
to these reduced costs, I predict and find that articles are more likely for
firms with auditor changes.
The press industry generates much of its income from advertising revenue
and so may be less likely to be critical of firms that are currently large
advertisers or have the potential to be in the future. However, I find no
evidence that the press is less likely to write articles regarding firms in high
advertising industries.
I also expect aspects of the fraud will impact the cost of identifying the
fraud and the benefits of publishing an article. I use the AAER information
to capture several aspects of the fraud. I find a high association between
the number of individuals involved in the fraud and the likelihood of an
article, consistent with inside leaks reducing the cost of investigating frauds.
Frauds with a greater dollar magnitude are also more likely to result in a
story, consistent with coverage of more egregious and interesting frauds.
Similarly, frauds that involve public misleading statements (such as a press
release claiming a large new contract and related accounting malfeasances
to support the press release) are likely to both reduce search costs and be
of greater interest to readers of the original disclosure. Consistent with this,
I find articles are more likely if the AAER alleges the company provided
a material publicly misleading statement or filing. Finally, frauds that involve
management profiting due to insider trading, hidden compensation,
or plain theft more easily lend themselves to a personalized and controversial
spin, suggesting the press may find frauds involving such actions as
being more newsworthy. Consistent with this, I find that frauds that are
accompanied by such actions are more likely to result in an article.
The purpose of this study is to provide evidence on the role of the press as
an information intermediary. The evidence indicates that the press facilitates
earlier public knowledge of a fraud both by original investigative reporting
and broadly rebroadcasting information from other intermediaries. While
the original reporting is informative to the capital markets, rebroadcasting
is not. Further, this study shows that the press is systematically biased towards#p#分页标题#e#
coverage of high visibility firms and those with interesting frauds. Combined,
this suggests that the press can provide an important informational role, but
that its coverage is far from complete. This study combines with other early
studies on the press to begin to develop a fuller understanding of the role
of the press in financial information flows.
The evidence provided in this paper is also of interest due to the increasing
use of the press as a control variable in accounting and economic studies
PRESS AS WATCHDOG 1005
(Frost, Gordon, and Hayes [2001], Bushman, Piotroski, and Smith [2003],
Haw et al. [2003]). With a greater understanding of the press, we can more
clearly determine whether these variables effectively capture the constructs
they are meant to measure.
This paper proceeds as follows: Section 2 discusses related literature and
motivates the research question, section 3 discusses the sample selection
and collection of press coverage, section 4 provides results, and section 5
concludes.
2. Related Literature, Motivation, and Research Questions
2.1 THE PRESS IN THE INFORMATION PROCESS
Existing research on the relation between the press and commerce is
limited (Zingales [2000]). The literature that does exist often has dramatically
conflicting findings. While many of the studies suggest that the press
impacts public perception in some manner, one group of studies indicates
press coverage lacks in-depth research and tends towards sensationalism.
For example, Jensen [1979] argues that the press has become a form of
entertainment and that articles are written to appeal to the lowest common
denominator. Consistent with this, Core, Guay, and Larcker [2005] study
press coverage of compensation and conclude that the press sensationalizes
their coverage by focusing on large ex post stock gains rather than compensation
expense to the company. They conclude that this press coverage
has no impact on compensation behavior. Using a clinical study approach,
DeAngelo, DeAngelo, and Gilson [1994, 1996] suggest that simplistic press
coverage of junk bonds may have skewed economic behavior of customers
and regulators. Dyck and Zingales [2002b] suggest that the press may encourage
financial bubbles by adopting a company’s spin in return for private
information. As a group, these studies question the validity of the press as
an important information intermediary in the economy and even suggest it
may play a negative role.
In contrast, other studies suggest that the press is an important component
of the information environment in society. There is a growing literature that
uses cross-sectional variation in the national characteristics of the press to
investigate the role of the press in corporate governance, governmental
actions, and development (Dyck and Zingales [2002a], Stromberg [2002],#p#分页标题#e#
Djankov et al. [2002]). This literature generally concludes that a strong
press can have a positive impact on the political and economic makeup of
a country. This impact is presumed to be driven by the oversight function
of the press. However, these studies have not examined the mechanism
through which the press exerts this oversight.
A few studies have shown that the press shapes public opinion by packaging
and rebroadcasting information that is already available (Huberman
and Regev [2001], Dyck and Zingales [2003], Dyck, Volchkova, and Zingales
[2005]). These studies indicate that press coverage per se impacts the
1006 G. S. MILLER
public’s response to information and the action of firms being covered.
Since these studies focus on rebroadcasting of information, they do not
provide any insight regarding whether the press actively investigates and
provides original information.
The goal of this paper is to add to the literature regarding the press by
examining a highly technical situation in which the press is likely to face
varying incentives to perform an investigative role. This allows me to examine
whether the press can participate as an early information intermediary
in technical situations, whether this participation includes original analysis,
the relative informational value of original analysis and rebroadcasting, and
whether the press skews coverage of frauds consistent with a preference for
sensationalism.http://www.ukassignment.org/Accounting_Essay/
2.2 THE PRESS AS A WATCHDOG FOR ACCOUNTING FRAUD
In this paper, I focus on one aspect of press reporting—acting as a monitor
or “watchdog” for the public by assisting in the early identification of
accounting impropriety.2 The watchdog role is frequently referred to as
one of the most important functions of the press (Serrin and Serrin [2002],
Islam [2002], Djankov et al. [2002], Dyck and Zingales [2002a]). The watchdog
process often includes combining public and non-public information
with an analysis that highlights potential problems. Watchdog journalism
in business reporting is unique in that SEC filings and other publicly available
information provide a rich starting point for the process. However, the
reporter still must identify the issue, improvise to collect supporting information,
synthesize the information, frame the issues, and disseminate to the
general public (Keller [1998]).
My study investigates the pres’s role as a watchdog by examining whether
the press publishes an article alleging accounting irregularities prior to a
public admission by the company or announcement of an SEC investigation.
In some situations, the press provides the first public indication that
an accounting issues exists, serving as the original information analyzer. In
others, it may pick up indications from another information intermediary#p#分页标题#e#
and rebroadcast the information. Being the first entity to identify an accounting
issue is a clear example of a monitoring role, and likely contains
more informational value than the subsequent coverage. However, even if
the potential issue was identified by another public information intermediary,
the press can still provide an important function by publishing an
2 The term “watchdog” refers to a journalist alerting the public to an issue through press
coverage just as a canine watchdog alerts others to a danger by barking. As with many jargon
terms, “watchdog reporting” has a loose definition. All of the working definitions include the
need for critical thought and question asking and many also restrict the definition to cases in
which the reporter is one of the first entities to address an issue to the broader public. Others
expand watchdog reporting to the follow-up that occurs after an issue is initially identified.
While examination of that follow-up role would be interesting, it is beyond the scope of this
paper.
PRESS AS WATCHDOG 1007
article that synthesizes this concern with other information regarding the
firm (Dyck and Zingales [2002a]). This validates the original concern and
makes the entire story more accessible to the general public.
Accounting fraud is an important event in evaluating companies and thus
also an important news event. The often extreme actions, tensions, and personalities
involved in accounting fraud create a compelling story, consistent
with sensationalism (Jensen [1979]). For example, one popular journalism
text, Jamieson and Campbell [2001, p. 41–52], defines a “newsworthy event”
as having five characteristics: (1) can be personalized, (2) dramatic, violent,
and conflict filled, (3) actual and concrete, (4) novel and deviant, and (5)
an issue of ongoing concern. Accounting fraud is one of the few business
stories that meets all five criteria.
However, countervailing pressures may reduce the pres’s activities as
watchdogs over firms. The nongovernment-owned press are market participants
themselves. Many of their interests are aligned with the market,
making it less likely that they desire to cause concern regarding the market
or face scrutiny themselves (Herman [2002]).3 These apprehensions can be
intensified by affiliations with parent companies or advertisers who may be
harmed by investigative reporting (Herman [2002], Jamieson and Campbell
[2001]). The press also may censor stories in an attempt to keep ongoing
sources available for future information (Jensen [1979], Herman [2002],
Dyck and Zingales [2002b, 2003]). Individual reporters may be concerned
about retaining their job and/or future employability if representatives of
companies complain to their editors (McNair [2002]).4 Finally, the press#p#分页标题#e#
has to be concerned about offending its readers, who are participants in the
market themselves (Jamieson and Campbell [2001]).5 These forces suggest
that the press is likely to face strong pressure against reporting accounting
improprieties.6 Accordingly, the press may choose not to provide initial or
early information regarding the problems, but rather to wait until a fraud has
been publicly acknowledged by the company and then use ex post articles
to fulfill the need for interesting business stories.
As the above discussion shows, the watchdog role could be an important
commerce-related function of the press. However, we have no
3 Jamieson and Campbell [2001, p. 62–63] quote Peter Silverman, the business and financial
editor of the Washington Post: “Newspapers themselves are among the most secretive and the
most protective about the facts and figures of their own business. They are not likely to ask
others to do what they are unwilling to do themselves.”
4 McNair [2002] presents several examples of attempts by businesses to silence reporters.
While many were not successful, in at least one case a reporter was fired shortly after a company
complained about coverage (McNair [2002, p. 14]).
5 BillWasik, an editor of Harpers, argues “When a company’s fortunes seem poised to enlarge
indefinitely, the interests of all potential sources—the company, the analysts, large investors—
are aligned not only with one another but with the interests of the reader , who is assumed to be a
shareholder or potential shareholder.” (Wasik [2003, p. 84]) (Italics in original).
6 It is interesting to note the similarity between these forces and those studied in the analyst
and auditing literatures.
1008 G. S. MILLER
understanding of if or how this occurs. Specifically, how often does the press
participate in the early public identification of an accounting fraud? Is this
done primarily through reporter investigative analysis or as a rebroadcasting
of other information intermediaries? Does the market view either action as
informative? Is there systematic bias in the types of firms or frauds covered
in the press? The next section develops specific research predictions and
methods for each of these issues.
2.3 RESEARCH QUESTIONS
2.3.1. Press Participation in Early Allegations of Accounting Malfeasances. I
first examine the degree to which the press fulfills the early identification
role. As I discuss more fully in the data section, I include firms in my sample
based on SEC AAER that allege accounting violations.7 Examining the
proportion of these firms identified by the press prior to the official announcement
of an accounting issue provides evidence regarding the press’s
ability to identify and its willingness to publish stories regarding suspected#p#分页标题#e#
fraud.
Next, I examine whether the articles more broadly disseminate information
created by other intermediaries versus providing an original analysis
and synthesis of new information. I address these questions using both an
examination of the sources stated in the articles and a returns-based event
study. I first examine the articles and code them as either attributing the
allegations to another information intermediary (analysts, auditors, or legal
functions) or investigative analyses by the press. These investigative analyses
are based on a wide range of activities such as review of financial statements,
channel checking with customers, investigation of announced contracts, etc.
Of course, isolation of sources based on the ex post article is difficult, as the
press may initially receive information from one entity but in the process
of writing the article rely on subsequent sources. Assuming no systematic
biases in such switches, this portion of the study still should provide insight
into the process by which the press collects information.
Reporter-generated analysis of accounting is a technical skill that is more
likely to exist within specialized business publications and reporters. Thus,
I expect that reporters and publications with these skills are more likely to
generate articles with original content, while those in less specialized outlets
are more likely to rebroadcast the views of other information intermediaries.
I investigate this within-press variation by examining the relation between
sources of information in an article and type of press/reporter.
I use a market return event study as a final method of examining original
information content versus rebroadcasting of information. If the press is
7 I use the term fraud in a broad sense to imply any type of systematic accounting misstatement.
AAER are the SEC’s version of the actions that led to an accounting misstatement within
the firm. Firms settle AAER without admitting or denying guilt and thus still may argue that
they were not guilty of accounting fraud or misstatement. However, the existence of an AAER
suggests that the SEC believes there were sufficient problems to make a public case.
PRESS AS WATCHDOG 1009
playing an informative role there will be a negative reaction to the articles.
Conversely, if the press is simply repeating widely known information and/or
is not considered a reliable source of analysis, then there will be no reaction
to the articles. Based on this, in the cross-section I expect a larger reaction
to articles that rely on reporter-generated information than on those that
rebroadcast information from other intermediaries. Several studies argue
that the press changes expectations and actions by rebroadcasting information
(Huberman and Regev [2001], Dyck and Zingales [2003], Dyck,#p#分页标题#e#
Volchkova, and Zingales [2005]). Consistent with these studies, I expect a
negative reaction even for rebroadcasted articles.8
2.3.2. Characteristics of Firms and Frauds That Influence the Likelihood of an
Article. The press may be an effective monitor in some situations, but ineffective
in others due to biases in coverage (Mullainathan and Shleifer
[2002]). Thus, I examine the firm and fraud characteristics that lead the
press to identify and publish an allegation of accounting fraud in some instances
while missing or staying silent in others. As with all economic agents,
I expect reporters will choose articles based on maximizing benefits and reducing
costs. That is, the press prefers articles that are interesting to a large
group of readers, resulting in higher subscription revenues and a larger
reader base to offer potential advertisers (Stromberg [2002]). Further, the
press will attempt to increase future readership by publishing stories readers
find memorable (Mullainathan and Shleifer [2002]). The press must also
consider the cost of undertaking such investigations. Firms with a richer information
environment can be analyzed more easily and some aspects of the
frauds may be easier to detect, both of which reduce the cost of investigation.
As is often the case, it is difficult to separate the impact of cost and benefits
in much of my empirical analyses. Accordingly, I discuss the empirical
implementation of the predictions provided by costs and benefits together.
I begin by considering three firm-level characteristics.
I expect that firms with a high number of stakeholders present an opportunity
to attract a large reader base. Further, stakeholder demand for
information should lead to greater demand for information directly from
the firm and an increased number of other information intermediaries following
the firm, resulting in a richer information environment for these
firms. Thus, relative to other firms, the benefits of coverage of these highvisibility
firms are greater and the cost of analyzing these firms is lower. I
proxy for high visibility by using market value, analyst following, and overall
press coverage (details of these items are discussed more fully in the sample
and results sections).
8 Dyck and Zingales [2002a] and Dyck, Volchkova, and Zingales [2005] are more in the
spirit of studying the impact of a group of articles rather than a single article. Accordingly, my
study of individual articles does not directly address their monitoring hypothesis. Instead, it
examines whether rebroadcasting creates an immediate informational update.
1010 G. S. MILLER
Auditors are primary analyzers of firm financial information. Changes in
auditors may serve to draw attention to a firm’s accounting and even provide
leads to disputed accounting issues. This reduces the cost of investigating#p#分页标题#e#
the firm. Thus, I expect that firms that experience an auditor change are
more likely to receive an article.
A firm’s advertising spending also may impact the likelihood of a critical
article. Advertising is an important source of revenue for the press and
publishers may be hesitant to print articles that will offend large current
or prospective advertisers (Reuter and Zitzewitz [2003]). Articles alleging
inappropriate accounting have a high potential for upsetting affected advertisers.
I predict firms that have the potential to be large advertisers are less
likely to be the subject of unfavorable articles. I proxy for advertising status
using an indicator variable that is coded as 1 if the firm is in an industry
that was in the top 15 advertising industries (according to Advertising Age)
in each of 1985, 1990, 1995, and 2000.
Next, I expect that characteristics of the fraud may impact the press’s
ability to frame the story in a way that will appeal to a broad set of readers
and/or the ease with which the press can detect the fraud. Thus, these
characteristics will influence both the costs and benefits that determine
whether an article is written regarding a particular fraud. I use information
from the AAER to collect various aspects of the fraud.9
By nature, frauds are designed to be concealed from outsiders. Thus,
identification of a fraud can be costly and the outcome highly uncertain at
the beginning of an investigation. An internal leak, or at least indication
of the potential for an issue, can have a strong influence on reassuring the
reporter that there is a story to be pursued and may even point the reporter
towards the sources needed to confirm the fraud. The more people involved
in the fraud, the greater the likelihood of a leak of the activities to outsiders.
Accordingly, I predict that the likelihood of an article is increasing in the
number of people involved in the fraud.
Frauds that involve a large dollar magnitude may be deemed as more
newsworthy, increasing the benefit of publishing an article. I investigate
whether the dollar magnitude of the fraud is related to the likelihood of an
article by including the total magnitude of the fraud.
I expect the press to be more likely to identify a fraud that involved a
materially misleading public statement. Such statements are likely to attract
scrutiny and communicate items the company expects will catch the
public’s attention, suggesting broad appeal to consumers of the press. Further,
they allow the reporter to frame the story as having caught management
attempting to fool the public, creating a personal element as well as
showing conflict and deviant behavior. This item both increases the benefits
and decreases the costs of investigating and publishing a story on the
firm.#p#分页标题#e#
9 The SEC often publishes multiple AAER regarding a single infraction. I collected information
from all AAER when this occurred. Given the difficulties in identifying AAER, it is possible
that some AAER were missed, introducing noise into the tests.
PRESS AS WATCHDOG 1011
Many accounting frauds occur concurrent with management misappropriation
of funds, either through illegal insider trading, manipulation of
bonus plans, or pure theft. While the cost of identifying these actions is unclear,
they will make the story more compelling by increasing the degree to
which the article can be personalized, is dramatic, has conflict, and covers
deviant behavior.
3. Research Design and Sample
3.1 SAMPLE CREATION AND AAER
To investigate the press’s actions as a watchdog for accounting malfeasances,
I must identify firms that have committed accounting violations.
Consistent with prior work, I use the SEC AAER to build a sample (Dechow,
Sloan, and Sweeney [1996], Bonner, Palmrose, and Young [1998], Beneish
[1999a, b]). There are differing opinions regarding why AAER are issued.
While some believe they are meant to address current trends observed by
the SEC (Feroz, Park, and Pastena [1991]), others believe they are issued
for high-profile cases that will enhance the stature of the SEC (DeFond and
Smith [1991]). In any case, there is wide agreement in the literature that
AAER generally represent egregious violations of the generally accepted accounting
principles (GAAP) standards of reporting and disclosure. As such,
they provide the basic criteria needed to develop my sample: an observable
sample of firms that have committed accounting malfeasances. AAER have
the added advantage of providing detailed information, such as discussion of
the violations, summaries of findings, and a timeline of the violation. This
in-depth characterization is helpful in developing variables to investigate
how the type of fraud impacts press coverage.
Use of AAER has disadvantages. First, AAER likely represent extreme
violations. If these firms have characteristics that vary systematically from
firms that commit fraud but do not receive an AAER, then the results may
not generalize into the population in general. Second, Feroz, Park, and
Pastena [1991] report that an SEC official indicated that approximately
one-third of its leads come from the financial press. It is not clear whether
that entails only articles that allege fraud, or that the press is simply one
source for collecting information. However, it is possible that a portion of
these firms would not have been identified without the press. Assuming
that all such articles are read by the SEC and that the SEC would never
identify the fraud absent press coverage, the findings in this paper would
likely overstate the proportion of frauds in the general population that are#p#分页标题#e#
identified by the press. That is, there may be many frauds missed by both
the SEC and the press.
AAER are identified using the SEC Web site.10 AAER are issued for a
wide range of violations. While accounting fraud is a primary reason for
10 As a robustness check, the AAER identified were compared to those in the October 2002
General Accounting Office document Financial Statement Restatements, Trends, Market Impacts,
Regulatory Responses , and Remaining Challenges. There were no discrepancies noted.
1012 G. S. MILLER
TA B L E 1http://www.ukassignment.org/Accounting_Essay/
Accounting and Auditing Enforcement Release Firms by End of Year of Fraud
Year Number of Firms Percentage of Sample Cumulative Percentage
1987 1 0.4 0.4
1988 1 0.4 0.8
1989 2 0.8 1.6
1990 6 2.3 3.9
1991 7 2.7 6.6
1992 21 8.0 14.6
1993 29 11.0 25.6
1994 28 10.6 36.2
1995 22 8.4 44.6
1996 30 11.4 56.0
1997 32 12.2 68.2
1998 27 10.3 78.5
1999 22 8.4 86.9
2000 24 9.0 95.9
2001 9 3.3 99.2
2002 2 0.8 100.0
Total 263 100 100

 

 

A firm is included in the sample if an AAER was identified on the SEC Web site and that release is
related to an accounting fraud perpetrated by the firm.
an AAER, they also frequently include insider trading, violations of SEC
requirements by auditing firms, and other illegal acts. For the purposes
of this study, only AAER that include a substantial accounting fraud are
retained.11 Subsequent analyses rely heavily on data from the Factiva news
service, such as identifying the date a firm issues a press release that it is
under investigation or restating earnings. The two primary services for firm
press releases are PR Newswire, with coverage beginning January 2, 1985 and
Business Wire, with coverage beginning July 28, 1998. Accordingly, AAER
with violation periods that began prior to January 2, 1985 are excluded.12 As
shown in table 1, this results in a sample of 263 AAER with violation periods
ending between 1987 and 2002.13
Information from eachAAERis coded for use in subsequent tests. Untabulated
analyses show that the AAER in this sample are consistent with those in
prior studies. For example, revenue manipulation is the most common form
of violation (49% of the sample) (Feroz, Park, and Pastena [1991]). Asset
overstatement is the second most common violation (35% of the sample).
11 For example, there were several AAER that involved payments that violated the Foreign
Corrupt Practices Act. These AAER also noted minor accounting violations related to how the#p#分页标题#e#
payments were recorded.
12 Robustness tests indicate the results are similar if AAER with violation periods prior to
July 28, 1998 are excluded.
13 The number of frauds in the beginning years of my study is low due to the requirement
that the fraud occur no earlier than 1985 and the generally long lag time between a fraud and
AAER. Similarly, the number of frauds in the last two years of my study is low due to the same
lag and the data collection period in early 2003.
PRESS AS WATCHDOG 1013
Other common violations include providing materially misleading public
statements/filings (26%) and manipulation of reserves (18%). These sum
to greater than 100% because the SEC frequently identifies more than one
violation per firm. In fact, the number of violations noted in the AAER vary
from one (16% of the sample) to seven or greater (1% of the sample).14
3.2 PRESS COVERAGE
Coverage is collected over several time periods, with searches designed to
create different variables. All press searches are performed on Factiva, which
is Dow Jones’s replacement for the Dow Jones News Retrieval service. Factiva
covers nearly 8,000 sources of information including all of the major wire
services (e.g., PR Newswire, Business Wire, Dow Jones, Rueters, AP), major
U.S. business publications (The Wall Street Journal, Barron’s, Forbes, Fortune,
Business Week), national and regional newspapers (The New York Times, Washington
Post, Los Angeles Times, St. Petersburg Times), and trade publications
(Computergram, Boating Industry).15
The first search examines press coverage over the period that the accounting
fraud occurred (i.e., the infraction period). This information is used to
assess the intensity with which the press examined the firm while the fraud
was occurring. Searches are performed using multiple variations of the firm
name within one search (full and corporate diminutives). Because the goal
is to identify press coverage, the wire services that directly reprint managerial
news releases (PR Newswire and Business Wire) are excluded from this
search. Similarly, summaries of a list of firm names and an item (such as
a large traded volume during the day) are excluded.16 Searches cover the
entire text of all documents. The resulting number of press articles is then
deflated by the length of the infraction period (in months) to standardize
press coverage across firms.17 The untabulated distribution of the number
of articles per month varies, with 42 of the firms averaging one or fewer articles
a month, and 18 included in more than 100 articles per month during
the infraction period. However, most firms have between 2 and 20 articles
per month.
I search for articles that identify the accounting fraud from the beginning
of the infraction period until the date of AAER issuance. However, articles#p#分页标题#e#
14 As a robustness check, all variables are interacted with the year of the violation to assure
there are no trends over time that may impact the use of these variables in later analyses. No
such trends are noted.
15 As a robustness check, several firms are randomly selected and press searches are run on
Factiva, Dow Jones, and LexisNexis. The results find Factiva to be a superset of Dow Jones.
While a few items appear on LexisNexis that were not on Factiva, they are not from major
publications and do not include information excluded by sources on Factiva.
16 These summaries include the DJ Highlights, News Highlights, V-Alert, P-Alert, California
Summary, Southeast Summary, Southwest Summary, Dow Jones Corporate Economic News
Summary, Recap of Dow Jones Special Reports, The Wall Street Journal Earnings Summary, and
the International Calendar of Corporate Events.
17 All reported results are similar if the undeflated variable is used.
1014 G. S. MILLER
are excluded if written after a public announcement by the firm of either an
SEC investigation or accounting restatement. There are often several years
between the infraction period and issuance of the AAER so a search string
is designed to comprehensively identify articles that question the firm or its
accounting while reducing the number of spurious articles to be read.18 If an
article is identified, only the first article is retained. Data on that article are
collected, including the publication, author, type of article, and cited source
of information. The decision of whether an article “caught” an accounting
failure is obviously judgmental.19 Coding bias was avoided by employing a
research associate who was not aware of any of the hypothesized relations.
In the case of uncertainty, a second research associate reviewed the article.
4. Results
4.1 ANALYSES OF FREQUENCY AND SOURCES OF ARTICLES WRITTEN
The first analysis examines the proportion of firms the press identifies
as having questionable accounting. Table 2 shows that 75 of the 263 firms
(approximately 29%) are identified by the press prior to the SEC or firm’s
public announcement. An interaction of the percentage of firms caught
and the last year of the fraud finds no discernable pattern. Thus, the press’s
actions as a watchdog of accounting fraud appear to have remained constant
over the time of my study.
It is possible that the press frequently writes negative articles regarding
firms’ accounting and thus the 29% finding is consistent with the level of
press questioning of all firms. In that case, the press’s inability to sort out
malfeasances from legitimate accounting reduces their value as monitors.
18 The search includes both the formal and shortened versions of the firm name appearing
in the same paragraph as any variation of: accounting, audit, fraud, illegal, illicit, insider#p#分页标题#e#
trading, investigate, overstate, understate, probe, quit, quits, quitting, resign, restate, revenue,
revenue recognition, rumor, law and suit within two words of each other, opinion and withdraw
within three words, short and sell or stock within three words. It also included the company
name and any words from the following group: adjustment, compensation, doubt, dubious,
financial, number, officer, recognition, record, reserve, Securities and Exchange Commission,
and SEC combined with any words from this group: corrupt, conceal, credible, debacle, deteriorate,
difficult, discrepancy, dishonest, failure, false, falsify, fear, improper, inconsistent, ills,
irregular,misappropriate, mislead, misrepresent, negative, offense, question, sell-off, shortfalls,
skeptic, suspicious, trouble, unexpected, unsupported, violated, weak, woe, worried, and writeoff.
Several companies with no caught article identified by the primary search are searched
without the limiting string. No additional caught articles are found.
19 In fact, even the press cannot agree on whether a specific article effectively identifies
misdeeds at a firm. For example, in the summer 2002 Neiman Reports there are three articles
regarding press coverage of Enron. Madrik [2002] contends that reporters did not look skeptically
at Enron, and in fact helped to perpetuate many of its practices. On the other hand, Behr
[2002] argues that negative coverage was minimal, but points to a March 2001 Fortune article
as raising questions regarding Enron. Steiger [2002, p. 10] (a managing editor at The Wall
Street Journal) argues that Enron’s misdeeds were uncovered in October of 2001 by “relentless,
careful, intelligent work of two Wall Street Journal reporters.”
PRESS AS WATCHDOG 1015
TA B L E 2
Firms “Caught” by Press Article Presented by Last Year of Accounting Fraud
Number of Number of Firms Percentage of Current
Year Firms with “Caught” Article Year with “Caught” Article
1987 1 1 100
1988 1 0 0
1989 2 0 0
1990 6 1 16.7
1991 7 1 14.3
1992 21 4 19.1
1993 29 9 31.0
1994 28 12 42.9
1995 22 10 45.5
1996 30 9 30.0
1997 32 7 22.0
1998 27 6 22.2
1999 22 5 22.8
2000 24 6 25.0
2001 9 3 33.3
2002 2 1 50.0
Total 263 75 na
Percent of Total 100% 28.5%
A firm is included in the sample if an AAER was identified on the SEC Web site and that release is
related to an accounting fraud perpetrated by the firm. A firm is considered “caught” by the press if an
article appears questioning the firm’s accounting prior to public disclosure by the firm (or SEC) that an
accounting problem exists.
To address this issue, 75 firms are randomly identified from the Center
for Research in Securities Prices (CRSP) database. The only criteria imposed#p#分页标题#e#
are that the year matches the time frame of the AAER sample and
that the firm continues to exist for at least two years after the initial year
of inclusion. The same research associate employs the identical search
string used for the AAER firms over a two-year period, finding only one
article alleging accounting malfeasances.20 A χ2 test indicates this rate of
1.3% is significantly lower than the 29% found in the AAER sample (0.001
level).
Next, I use the information in articles alleging fraud to gain a better understanding
of whether the press generates original information or primarily
rebroadcasts views of other intermediaries. Table 3, panel A classifies articles
into source categories meant to aggregate articles that suggest a similar
underlying information-gathering process: reporter-generated information,
analyst, legal cases, and auditor resignations. Articles in the first category
suggest the press is the first information intermediary to publicly identify
the accounting issues. Articles in the last three categories make it more likely
20 A second article is identified that the research associate does not believe alleges fraud,
but does challenge the explanation of legitimate accounting provided by the company. If it is
included as an article, the rate increases to 2.7% and the difference with the AAER sample is
still statistically significant at the 0.001 level.
1016 G. S. MILLER
TA B L E 3
Information Sources and Types of Publication for Watchdog Articles
Panel A: Information sources cited by the press
Number of Percentage of Cumulative
Information Source Articles Caught Sample Percentage
Reporter-generated information 27 36.0 36.0
Analyst 22 29.4 65.4
Legal cases 15 20.0 85.4
Auditor resignation 11 14.6 100.0
Total 75 100 100
Panel B: Types of publications
Number of Percentage of Cumulative
Type of Publication Articles Sample Percentage
National business 29 38.7 38.7
Local market 23 30.7 69.4
Electronic business 14 18.7 88.1
Trade publications 7 9.3 97.4
National nonbusiness 2 2.6 100
Total 75 100 100
Source is based on the source that is attributed as providing the primary information or to have
provided the information that initiated the article. Reporter-generated information includes articles that
state sources as publicly available SEC documents or financial statements, analysis of public statements
made by the firm, tips from customers, industry insiders, or anonymous sources, or article is written based
on analysis from such information without stating another external source. Analyst includes attribution to
an individual who is a sell-side analyst or buy-side analyst, to a professional investing newsletter, or to short
sellers (named or anonymous). Legal cases include articles that reference information either from court#p#分页标题#e#
proceedings or from participants in court proceedings (civil and criminal). Auditor resignations references
8-K are of auditor changes. Industry/customer information includes attribution to either industry insiders
or customers of the firm (named or anonymous).
National business publications are publications that cover the national (or global) areas. This category
includes The Wall Street Journal, Fortune, etc. Local market publications are generally regional papers,
such as The San Francisco Chronicle, Chicago-Sun Times, etc. Electronic business publications consist almost
entirely of the Dow Jones News Service with one article from Bloomberg. Trade publications are based
on covering a specific industry in depth. Examples include Boating Industry and Business Insurance. The
national nonbusiness publications are USA Today and The New York Times.
that the press is not the first to provide identification, but rather played the
more limited role of rebroadcasting. Still, this highlighting of an issue is an
important function in the overall watchdog process.
Articles based on reporter-generated information are most common, with
27 articles (36% of the sample). This includes articles using reporter-based
analysis of public information (such as financial statements) and articles
relying on information from sources that are not normally available to the
general public (such as customers or industry insiders).21 In each of these
articles, it is the reporter making the case for accounting impropriety based
21 Many of these articles simply refer to the financial statements without providing exact
sources (i.e., they just say the latest quarter or annual report). However, others provide a
detailed explanation of the information used. As a few examples, seven of the articles refer to
customers or industry insiders, two to anonymous tips, one to Web-based information, four to
specific SEC filings (by filing number and page), etc.
PRESS AS WATCHDOG 1017
on analysis of public and private information. No other information intermediaries
(i.e., analysts, auditors, or the legal system) are cited.22 Many of
these articles provide a clear description of press-initiated investigative reporting,
but others question the accounting without discussing the reason
for investigating the firm.23
Analysts are referenced in 22 articles (29%), making them the second
most common source. In most cases, it is difficult to determine whether such
articles are the result of press-initiated discussion of the firm or if the analyst
identified the issue and took it to the press.24 Limited information in the
articles suggests both occur.25 Only 8 of the articles refer to written analyst
reports (3 sell side, 5 newsletters), while 10 articles identify the analysts as
working for the buy side/shorts who would not generally provide public#p#分页标题#e#
reports. The private nature of these entities indicates that the press is the
likely vehicle for bringing many of these allegations to the general public.
To further understand the relationship between analysts and the press, I
compare fraud identification rates and sources for firms with sell-side coverage
to those without (per I/B/E/S). Thirty-six of the 133 firms with no
coverage are identified in an article (27%), while 40 of the 130 firms with
analyst coverage are identified (31%). These amounts are statistically equivalent.
Turning to the sources of coverage, analysts are cited in only 7% of
the articles for firms without sell-side coverage, but in 43% of the articles
for firms that have sell-side coverage. Conversely, 47% of the articles for
the noncovered firms are based on reporter analyses, compared with only
28% of those for firms with coverage. It is possible that the high number of
reporter-generated articles is indicative of the actual proportion of articles
that are press initiated and the analysts’ cites are simply an attempt to use
analysts as third-party “experts” in a press-identified article. Alternatively,
the shift in percentage could indicate that the press is more likely to undertake
independent analyses in the absences of analysts’ coverage. In either
case, it indicates that the press is capable of identifying a large proportion
of articles without analysts’ support.
22 If an analyst, lawsuit, or auditor resignation was mentioned, the article was classified in
that related category regardless of the extent of additional analysis provided.
23 As an example of articles that indicate press-initiated investigative reporting occurred,
a reporter noticed an ad to sell specialized used computer equipment as part of liquidating
a line of business. No company was identified, but there was a local (Silicon Valley) number.
The reporter called the number and asked what company he had reached. He investigated
the company and found they had made several recent public statements regarding the strong
performance of that sector of their business with no mention of liquidation.
24 I attempt to search for analyst reports that alleged accounting malfeasances prior to the
publication of a press article. However, it is difficult to obtain analyst reports over much of the
period of the study.
25 Anecdotal discussion with analysts and reporters also suggests both happen. Several analysts
have indicated the press as an important ongoing source of information. Further, analysts
indicated they are frequently contacted by the press regarding companies they do not follow
or follow “passively.”
1018 G. S. MILLER
The third most frequently cited source is legal cases, which occur in 15
(20%) of the articles. They range from shareholder lawsuits alleging malfeasance#p#分页标题#e#
to civil cases involving wrongful discharge and criminal cases investigating
theft. It is easy to determine causality in legal cases as the filing leads
the reporter to investigate the company. Some articles appear to rely entirely
on case information, but most articles include additional investigative
reporting such as speaking to officers or customers of the company.
The final category is auditor changes, cited in 12 (16%) of the articles.
Similar to the legal cases, the reporters use the change as a cue to look more
carefully at the company and then develop information for articles that goes
beyond that found in the 8-K filings with the SEC.26
Next, I examine the type of publications that print articles alleging inappropriate
accounting. Given the technical nature of accounting fraud, I
expect that publications that specialize in business reporting are more likely
to have the tools to identify fraud and a subscriber base that will find such articles
newsworthy. Untabulated analyses find that the articles are published
in 40 different outlets from 54 authors. The Wall Street Journal and Dow Jones
News Service have the greatest number of publications, with 14 each, followed
by The San Francisco Chronicle, with 6.27 While several publications have
multiple articles, the majority have one. Only one author has more than one
article (Herb Greenberg, who accounts for five of the San Francisco Chronicle
articles); 18 of the articles do not have an author in the byline.
Classifying publication type is inherently subjective (Jamieson and
Campbell [2001]). With this caveat in mind, table 3, panel B provides aggregated
information regarding the types of publications that cover accounting
fraud. Twenty-nine of the articles are published in national business publications
(The Wall Street Journal, Business Week, etc.). Twenty-three are from
“local market” publications (Chicago Sun-Times, Miami Herald, etc.). Fourteen
of the articles are from electronic media (Dow Jones News Service and
Bloomberg). Seven are from trade publications (Boating Industry, Business Insurance,
etc.). Finally, two are from nonbusiness national publications (USA
Today and The New York Times).28 Consistent with my expectations, these
descriptive data show the importance of business publications in serving as
26 I include analyst following and auditor change as firm characteristics in the cross-sectional
study of attributes that impact the publication of an article. I planned to include legal cases,
but a pilot search of 14 firms (5% of the sample) found that all but one had legal cases during
the period of the fraud. These cases are so common that there is effectively no variance.
27 These two sources are related. Dow Jones News Service has over 20 regional offices that
prepare articles that go out on the Dow Jones Wire Service. The articles are also submitted to#p#分页标题#e#
the editors of the The Wall Street Journal who determine whether some version of the article
should appear in The Wall Street Journal (Thompson, Olsen, and Dietrich [1987]).
28 Factiva provides limited coverage of The New York Times during some portions of my sample
period. Thus, the number of New York Times’ articles may be understated. As a robustness check,
a research assistant uses LexisNexis to search 10 companies for which no article was found and
10 companies with an article from a publication other than The New York Times. No articles were
found.
PRESS AS WATCHDOG 1019
TA B L E 4http://www.ukassignment.org/Accounting_Essay/
Relation between Sources of Information and Characteristics of the Publications
Panel A: Relation between sources of information and type of publication
National Local Electronic Trade
Information Source Business Market Business Publications
Reporter-generated information 12 8 3 4
Analyst 12 4 6 0
Legal cases 2 8 4 1
Auditor resignation 3 5 1 2
χ2 (p-value) 15.15(0.0869)
Panel B: Relation between sources of information and frequency of article
Percentage Percentage of
of Recurring One One-Time
Information Source Recurring Sample Time Sample
Reporter-generated information 10 55.6 17 29.8
Analyst 7 38.9 15 26.3
Legal cases 1 5.56 14 24.6
Auditor resignation 0 0 11 13.5
Total 18 100 57 100
χ2 (p-value) 12.20(0.0067)
Source is based on the source that is attributed as providing the primary information for or to have
initiated the article. National business publications are publications that cover the national (or global)
areas. This category includes The Wall Street Journal, Fortune, etc. Local market publications are generally
regional papers, such as The San Francisco Chronicle, Chicago-Sun Times, etc. However, for the purposes of
this table, they also include the two national nonbusiness publications (The New York Times and USA Today).
Electronic business publications consist almost entirely of the Dow Jones News Service with one article
from Bloomberg. Trade publications are based on covering a specific industry in depth. Examples include
Boating Industry and Business Insurance. Recurring articles are from a column that is published by a single
reporter/set of reporters on a regular basis. χ2 is based on a likelihood ratio χ2.
watchdogs for accounting fraud, but they also show that many other sources
uncover and publish articles regarding accounting fraud.
Next, I examine relations between the sources and types of publications.
The goal in this interaction is to examine whether the specialization of
business reporters leads to more articles based on the original (or “investigative”)
reporting interaction with other information intermediaries. To
reduce dimensionality, I combine national nonbusiness publications with#p#分页标题#e#
local market publications, as both are general interest news outlets.
Table 4, panel A shows that reporters from all publication types use a
wide variety of sources to identify accounting fraud. However, there are
patterns in the relative usage of sources consistent with specialization leading
to more active reporting. First, the national and electronic business
publications have a high reliance on analysts, while local market and trade
publications rarely use that source. Second, national business publications
rely equally on reporter analysis and analysts (12 articles from each), but do
not appear to write articles in response to lawsuits and auditor resignations,
suggesting they focus on original analysis rather than rebroadcasting legal
and regulatory filings. The χ2 value of 0.09 indicates that these differences
are statistically significant.
1020 G. S. MILLER
Panel B compares authors with a recurring column with articles that appear
as one-time coverage. Recurring authors may be more focused on providing
individual analysis, and thus developing the brand of their column.
Additionally, they are more likely to be business specialists. Accordingly, I
expect recurring authors to be more likely to rely on active reporter investigation.
The findings in panel B support this hypothesis, with the majority
of the recurring articles being based on reporter analysis while nonrecurring
articles are more likely to rebroadcast. A χ2 test finds these levels to
be significant at the 0.007 level. Combined, the source differences across
publication and author type indicate that specialization allows reporters to
develop a skill set and contacts that assist in providing original information.
The final investigation of the source of the news employs market returns to
examine whether the market views the articles as providing new information.
The market should respond negatively to new information alleging accounting
malfeasances. The prediction is less clear for rebroadcasted information.
Some studies indicate the press impacts perceptions by rebroadcasting information
(Huberman and Regev [2001], Dyck and Zingales [2003], Dyck,
Volchkova, and Zingales [2005]). On the other hand, in an efficient market,
repeating known information should not impact returns. This event-study
faces several threats to its validity. First, the day on which the article became
available is difficult to determine. This threat is relatively limited for wire
services (which report real time) and newspapers (which generally are published
in the morning, or at least available before trading ends). Magazines,
however, are frequently published in advance of the “issue date.” Difficulties
in identifying the exact date the article became public introduce noise
and reduce the power of the tests. Second, some articles cite relatively recent#p#分页标题#e#
events, such as lawsuits and auditor changes, that likely impact returns.
If these events occur within the return window used for the event study,
then results may be biased in favor of finding a market reaction. To reduce
this bias, tabulated analyses rely on one-day returns, rather than the standard
three-day window. Third, my sample of 60 firms divided into multiple
categories results in relatively low-power tests, creating some problems in interpreting
nonsignificant results. Finally, these tests only examine whether
the market treats this as new information. It is possible that this information
is already in price, but that rebroadcasting is still informative to other firm
stakeholders.
I am able to identify clean returns data for 60 of the articles using a
combination of CRSP, Datastream, and Bloomberg.29 Untabulated univariate
results find an average (median) one-day market adjusted reaction of
−6.3% (−2.9%). The same measure for the three-day return centered on
29 I identify 63 of the firms on these databases. However, two firms had significant events
announced after trading ended the day before the article and one was a penny stock trading
at $0.08 per share. If these firms are included, the results are similar except the returns for
articles based on auditor changes are significant in some specifications.
PRESS AS WATCHDOG 1021
article publication date is −8.2% (−4.5%).30 All of these amounts are statistically
significant. This evidence indicates that these articles provide new
information to the market.31
Table 5 reports regressions of day zero abnormal returns on the source,
publication, and recurrence of author, consistent with the categories in
tables 3 and 4. This analysis examines whether differences in the sources
used to write the article, venue of publication, or type of author impact
the informativeness of the article. All regressions suppress the intercept
and include indicator variables for each category. In the first three regressions,
categories are mutually exclusive, thus the coefficient is equivalent to
a mean.32 As shown in the final regression, the regression specification has
the advantage of including controls for venue and recurrence.
The first regression shows the response to articles based on source of information.
The response is statistically negative for articles based on reportergenerated
analysis or analysts. I expect reporter-generated articles, which
are based on analysis and/or sources not commonly available to the public,
to have the greatest incremental information content for the market. Consistent
with this, the −13.9% reaction to these stories is statistically greater
than that for the articles based on any of the other sources. In this specification,
articles citing analysts are also significant, though the −4.5% return#p#分页标题#e#
is both statistically and economically smaller in magnitude than the returns
for reporter-generated articles.
Table 6 also shows the response to articles in different press outlets. I
expect that business-related press outlets are more likely to provide informative
articles due to both their original reporting sources and their sophisticated
audience. Consistent with this expectation, articles in the two
business-focused outlets (wire services and national business publications)
generate a statistically negative response, while those in the other publications
are indistinguishable from zero. The other finding of note in this
regression is the much greater magnitude of the response to stories from
the wire services (−12.6%) than to those from the other publication outlets.
This is consistent with the timeliness of wire coverage providing useful
information to sophisticated market participants.
The third regression compares the response to articles from a recurring
column with those from nonrecurring authors. Again, I expect that
30 The greater magnitude for the three-day response is consistent throughout the market
tests. The relative magnitudes across categories remain consistent with the one-day measure.
However, many of the statistical significance levels are weaker, suggesting that the inclusion of
the three-day period introduces noise.
31 As an alternative explanation for unconditional market response, it may be that press
coverage imposes costs on a firm even if the underlying information is already known (such as
potential litigation issues, stakeholder communication issues). In that case, there would be a
negative response to all articles and no differential response across categories as all categories
involved press coverage.
32 Untabulated tests of medians show similar patterns of returns and levels of significance
to those in the mean/regression tests.
1022 G. S. MILLER
TA B L E 5
Regression of Day Zero Abnormal Returns on Categories of Sources, Publications, and Recurring Articles
F -Value F -Value
(p-Value) (p-Value)
Compared to Compared to
Coefficient Reporter Coefficient Coefficient Coefficient Reporter
Category (p-Value) Generated (p-Value) (p-Value) (p-Value) Generated
Reporter-generated −13.9% −12.6%
information (0.0001) (0.0004)
Analyst −4.5% 4.45 −2.2% 5.69
(0.0716) (0.0197) (0.2808) (0.0103)
Legal cases −1.7% 5.38 1.4% 7.25
(0.3376) (0.0120) (0.3753) (0.0047)
Auditor resignation 0.5% 5.28 1.9% 5.40
(0.4595) (0.0127) (0.3591) (0.6876)
National business −6.3%
(0.0247)
Local market −4.3%
(0.1317)
Electronic business −12.6% −11.0%
(0.0011) (0.0051)
Trade publications −0.4%
(0.4661)
Recur −5.1% −1.5%#p#分页标题#e#
(0.0079) (0.3611)
Nonrecur −6.7%
(0.0040)
Abnormal returns are the firm market returns per CRSP, Datastream, or Bloomberg on the day the article is released less the CRSP market returns on the same day. Returns data were identified
for 60 firms. All variables are 0/1 indicators. Source is based on the source that is attributed as providing the primary information or to have initiated the article. National business publications are
publications that cover the national (or global) areas. This category includes The Wall Street Journal, Fortune, etc. Local market publications are generally regional papers, such as The San Francisco
Chronicle, Chicago-Sun Times, etc. However, for the purposes of this table, they also include the two national nonbusiness publications (The New York Times and USA Today). Electronic business
publications consist almost entirely of the Dow Jones News Service with one article from Bloomberg. Trade publications are based on covering a specific industry in depth. Examples include
Boating Industry and Business Insurance. An article is considered regional if it is from a local publication in the same region or a national publication but provides a byline indicating the story was
written locally. Recurring articles are from a column that is published by a single reporter/set of reporters on a regular basis. As all articles are predicted to have a negative market response,
p-values are one-sided.
PRESS AS WATCHDOG 1023
TA B L E 6
Cross-sectional Examination of Characteristics of Firms and Fraud That Lead to an Article by the Press
Panel A: Means and medians
p-Value of
Variable Caught Not Caught Difference
PRESSINT Mean 51.72 24.15 0.031
Median 8.23 5.11 0.062
ANALYST Mean 0.33 0.22 0.033
Median 0 0 0.033
MV Mean 12.6 11.8 0.014
Median 12.5 11.7 0.048
AUDITOR Mean 0.40 0.28 0.0316
Median 0 0 0.0317
BIGADS Mean 0.14 0.18 0.281
Median 0 0 0.286
NUMINV Mean 4.3 3.2 0.004
Median 4 3 0.016
AMOUNT Mean 3.00 2.06 0.001
Median 2.78 2.04 0.002
MISLEAD Mean 0.37 0.22 0.008
Median 0 0 0.005
STEAL Mean 0.33 0.20 0.018
Median 0 0 0.012
Panel B: Logit analyses (p-values in parentheses below coefficients)
Caught = αt + β1VISIBILITY + β2AUDITOR + β3BIGADS + β4NUMINV + β5AMOUNT
+β6MISLEAD + β7STEAL + ε
Visibility Variable
PRESSINT ANALYST MV
INTERCEPT −2.4321 −2.3958 −3.9020
(0.0001) (0.0001) (0.0002)
VISIBILITY 0.0028 0.3762 0.1502
(0.0481) (0.1356) (0.0424)
AUDITOR 0.6959 0.6654 0.3815
(0.0123) (0.0158) (0.1465)
BIGAD 0.0335 −0.0011 −0.2788
(0.4678) (0.4990) (0.2805)
NUMINV 0.1013 0.0824 0.1462
(0.0356) (0.0656) (0.0117)
AMOUNT 0.1833 0.1934 0.0976
(0.0050) (0.0083) (0.1763)
MISLEAD 0.6302 0.6664 0.6902#p#分页标题#e#
(0.0251) (0.0192) (0.0437)
STEAL 0.6090 0.6272 0.6139
(0.0336) (0.0299) (0.0642)
Likelihood ratio 299.41 301.06 213.19
(χ2) (31.02) (29.37) (23.43)
Two-tailed p-value for INTERCEPT, one-tailed for other variables.
This table presents analyses of differences between firms for which fraud was identified (CAUGHT = 1) and those
for which it was not (CAUGHT = 0). Sample size for all analyses other than those including MV is 263. Seventy-five firms
are coded as CAUGHT = 1. Sample size for analyses with MV is 181. Fifty-four of those firms are coded as CAUGHT = 1.
PRESSINT is measured as the total number of articles by the press over the fraud violation period divided by the months
of the violation. Articles were identified using Factiva. ANALYST is an indicator variable coded as 1 if the firm is in the top
quartile of analyst following for the sample, 0 otherwise. Analyst following is measured at the last month of the violation
period and is from I/B/E/S. MV is the log of market value of the firm in billions. Market value is measured on the last day
of the violation period and is obtained from CRSP. AUDITOR is an indicator variable coded as 1 if the auditor changed
during the period of the fraud or in the following year. Otherwise, coding is 0. BIGAD is an indicator variable coded as
1 if the firm is in an industry that was in Advertising Age’s top 15 advertisers for 1985, 1990, 1995, and 2000. Otherwise,
the coding is 0. NUMINV is the number of persons involved in the fraud as cited in the AAER. AMOUNT is the log of
the sum of the dollar amount of the violations documented in the AAER. MISLEAD is an indicator variable coded as 1
if the violations on the AAER included a materially misleading public statement or report, 0 otherwise. STEAL is an indicator
variable coded as 1 if the AAER indicates management misappropriated funds as a portion of the fraud, 0 otherwise.
1024 G. S. MILLER
recurring authors will be more likely to provide original analysis with strong
information content. While the findings in table 4 suggest the authors of
recurring articles are more likely to provide original analysis, the market
response is statistically equivalent across these two categories.
The final column reexamines the response to the information source categories
with controls for wire service and recurring articles. The response to
articles relying on analysts is lower in magnitude and no longer statistically
different from zero, all other results are consistent with those previously
discussed. This provides further support for the contention that press reporting
is most useful when based on analysis not available through other
information intermediaries rather than rebroadcasting of information. It is
important to note that these tests are based on one day returns and thus are
designed to exclude the period in which the nonpress analysis was initially#p#分页标题#e#
provided (i.e., the day of the analyst report, auditor resignation, or lawsuit).
To the degree that the test design successfully excludes these events, it
tests only the importance of rebroadcasting—it does not examine whether
information from these sources had an initial impact on price.
As an additional examination of information content, I collect daily trading
data from the Trade and Quote (TAQ) database. TAQ data do not begin
until 1993 and are also more restricted in coverage than CRSP data, resulting
in data for only 37 firms. For each of these 37 firms, I aggregate the data
over the day of the article to calculate number of trades, volume, average
trade size, and volatility. I calculate abnormal values by using the same data
for the period seven days prior to the article. Many of the variables (such
as number of trades) are highly correlated with size, thus, I use percentage
change in those variables. In an untabulated analysis, I find that article days
have a statistically higher mean and median standard deviation in volatility.
Further, trade volume increases by 375% while average number of trades increases
by 429%. Although there is an increase in trades of all sizes, there is
a statistically significant shift upwards in the proportion of small trades (less
than 1,000 shares). Combined, these data suggest that the articles include
information to which the market responds and appears to be most informative
to small traders (who are likely individuals). While cross-sectional tests
generally confirm the findings regarding sources in table 5 (i.e., reportergenerated
information and auditors’ resignations are most informative),
they are not robust to specification checks and thus are not presented.33
Overall, the market return evidence indicates press articles are informative
to market participants. In particular, press articles based on reporter
analysis seem to create significant changes in the market’s assessment of a
firm.
33 For the returns and TAQ data, I randomly omit 10% of the sample and reperform the
regressions 100 times each. Results for the returns data are generally consistent with those in
table 6. The aggregate TAQ data results reported in the text are robust, but the cross-sectional
examinations by categories are unstable.
PRESS AS WATCHDOG 1025
To further assess the economic importance of these actions, I examine
descriptive data regarding the eventual announcement of an issue by management
or the SEC. I find that press articles lead the “hard” announcement
by a mean of 294 days. However, the median of 99 is more informative, as the
mean is skewed by the small number of firms that withhold any announcement.
34 Medians for articles based on reporter analysis, analysts, and lawsuits
are relatively similar at 112, 92.5, and 96 days, respectively. However, the median#p#分页标题#e#
for auditor changes is only 16 days. While I cannot provide a conclusive
answer for this difference, it is likely that auditor changes attract the attention
of the SEC and prompt outsiders to begin questioning management,
thus forcing an admission of an investigation. As robustness checks, I recalculate
all previous tests excluding articles issued within 7 days or greater than
365 days of the management announcement. Results remain qualitatively
and statistically similar. Finally, to provide a benchmark for the magnitude
of the market response to the articles, I examine the market response to the
management/SEC announcement of the issue. I amable to identify returns
for 50 firms with a mean response of −16.2%.35
4.2 FIRM AND FRAUD CHARACTERISTICS THAT INFLUENCE COVERAGE
I next turn to investigating cross-sectional factors associated with whether
a given firm-observation results in a published article. As discussed in section
2.3, I expect that the press will consider costs and benefits to providing
coverage that vary with characteristics of both the firm visibility and fraud
committed.
I expect that reporters/publishers will maximize the benefits and minimize
the cost of articles by focusing on firms that have high visibility. I
measure visibility with three variables. First, press intensity (PRESSINT) captures
the amount of attention received in general by the press. Recall that
PRESSINT is calculated by identifying all articles written over the period of
the violation and then deflating by the length of the violation in months.36
Second, I examine analyst following (ANALYST) measured in the last month
of the violation period. Consistent with prior research, I address the skewness
of analyst following by using a dichotomous coding of 1 if the firm
has analyst following in the top quartile of the distribution of my sample
34 An examination of these firms indicates the majority were companies that were used
explicitly as a vehicle for fraud rather than legitimate companies that became involved in frauds.
For example, several were expost identified as being controlled by serial market manipulators.
35 I identify returns for 118 firms that do not receive an article. The response of −18.8% is
statistically equivalent to that of the firms that receive an article. Given evidence in the crosssectional
returns tests that information leaks to the market occur through other intermediaries
and findings in the subsequent determinants of article tests that both firms and frauds are
systematically different across the groups, I cannot provide an ex ante expectation of differences
on these dates.
36 As robustness checks, all tests are run using press coverage in the quarter prior to the
fraud and in the two weeks prior to the AAER announcement. All results are similar.#p#分页标题#e#
1026 G. S. MILLER
(Bradshaw, Bushee, and Miller [2004]).37 The third variable is the log of
market value (MV ) of the firm measured at the end of the period of fraud.
Consistent with prior research (Feroz, Park, and Pastena [1991]), I find that
many firms cannot be identified on CRSP (82, or 31% of the sample, almost
evenly distributed between the caught and not caught subsamples). Obviously,
missing firms are excluded in the MV analyses.38 However, they are
included in all other analyses. Untabulated analyses find that the three variables
meant to capture information environment are highly correlated. Even
the lowest correlation, ANALYST and PRESSINT, has a Pearson (Spearman)
correlation of 0.64 (0.72). The Cronbach’s alpha for the three variables is
0.83, which exceeds Nunnally’s [1978] suggested value of 0.70 for a reliable
index. Finally, factor analysis of the three variables finds only one factor.
When multiple factors are forced, the first factor loads with an eigenvalue of
1.72; all forced factors have negative eigenvalues, implying that they reduce
the ability to explain variation in comovement. Given this high correlation,
I do not combine these variables in my logit regressions. Rather, I run the
logit three times, once with each information environment variable.39
Auditors are an important information intermediary and changes in auditor
may signal an accounting issue to the press. I identify changes in auditors
both during and one year after the fraud using Compustat. For firms missing
the Compustat data items or with auditor identified as “other,” I perform a
search of Factiva for any indication of auditor changes.
I examine whether the press is less likely to publish articles for firms in
a high advertising industry by including an indicator variable if the press
is in a high advertising industry. I use industry, rather than firm-specific,
advertising spending, as publishers must consider future, not just current,
advertising spending.40 My dependent variable is coded based on whether
37 This variable is calculated using I/B/E/S data. If a firm cannot be identified on I/B/E/S,
analyst following is assumed to be zero. Results are similar if such firms are discarded. Results are
also similar if the variable is left in its raw continuous form, logged, measured at the beginning
of the violation period, and as an average over the violation period
38 As robustness checks, all tests are also run using market value at the beginning of the
fraud period and average market value over the fraud period. All results are similar. I also use
multiple imputations to generate observations for missing market data (Yuan [2005]). Results
are similar.
39 A logit using the factor score in place of the information variables finds a positive and
significant coefficient. The findings on all other variables remain the same as those presented#p#分页标题#e#
in the tables. I do not use the factor score in the primary analysis due to the large number of
lost observations caused by missing market values.
40 Consistent with the CRSP coverage, many of these firms are not covered on Compustat. A
review of several of these firms indicates that they tend to file abbreviated financial statements
(small business 10-Q) and thus do not provide the financial statements used by Compustat to
create their data. Several firms that are covered by CRSP are not covered on Compustat, and vice
versa, suggesting that the lack of coverage is database specific, rather than an inability to identify
cusips and permnos. As a robustness test, I reperform these tests using firm-specific spending
as available on Compustat. Due to the frequency that this variable is missing, I perform the
test using only advertising during the period of the fraud and using advertising for the closest
period included on CRSP. The variable is insignificant in all variations.
PRESS AS WATCHDOG 1027
any member of the press identifies accounting fraud, so I do not attempt
to isolate spending with a given publisher. This variable is created from the
annual advertising rankings provided by Advertising Age.
Aspects of the accounting fraud may influence whether the press detects
the fraud and writes an article. First, I expect that frauds with more people
involved are more likely to result in a leak, thus decreasing the cost
of following the fraud. I measure the number of people involved from the
AAER (NUMINV ). Second, severe frauds are more likely to be of interest
to the public, and thus to offer a higher benefit to members of the press.
I measure severity by the magnitude of the total dollars included in the
AAER (AMOUNT).41 Third, I expect frauds that involve material public
misrepresentations and misleading statements (through a press release or
financial statements) (MISLEAD) to be more likely to attract press and public.
This both decreases costs and increases the benefit of publishing an
article. Fourth, I expect that fraud that involves some form of management
misappropriation of funds will be viewed as more intriguing. A company
is coded as having such misappropriation (STEAL) if the AAER included
censure for insider trading, illicit payments, undisclosed compensation, or
pure theft.
Table 6, panel A provides univariate and panel B provides logit analyses
of the difference in these variables between firms caught and those not
caught by the press. The results indicate that visibility variables are related
to the likelihood that the press will publish an article regarding accounting
fraud. Caught firms have a significantly higher mean and median level of
PRESSINT, ANALYST, and MV . Findings are similar in the logit analysis,
except for the ANALYST variable, which is no longer statistically significant.#p#分页标题#e#
Overall, results are consistent with the press publishing articles based on the
benefits of attracting a large reader base and finding it easier to investigate
firms that have a readily available body of information.
Univariate and logit results indicate that a firm is more likely to be covered
in an article if there is an auditor change.42 However, if I exclude the firms
for which auditor was coded as the source of the article, this variable is no
longer significant. All other variables remain unchanged. This suggests that
the press accurately reports when they rely on auditor changes, providing
further support for the source classifications discussed previously in the
paper.http://www.ukassignment.org/Accounting_Essay/
The univariate and logit results provide no evidence that press coverage
is correlated to current or future advertising revenue. This may be due to
noise in my industry-level data and/or the fact that many high-advertising
41 Unfortunately, the AAER are not always clear on magnitude. Further, the types of fraud
vary—making aggregation somewhat problematic. I expect these aggregation issues will add
noise, but have no reason to anticipate bias.
42 The logit results using MV as the visibility variable have lower statistical significance for
AUDITOR and AMOUNT. Given the large number of observations missing data, I recalculate
these tests using multiple imputation to generate MV . AUDITOR becomes significant, but
AMOUNT remains insignificant.
1028 G. S. MILLER
industries may not advertise in the business press (e.g., consumer product
companies may not view the readers of the business press as their target market).
However, findings from concurrent research suggest that the cause may
be more complex. Reuter and Zitzewitz [2003] study whether advertising
spending by mutual fund companies impacts the likelihood that the fund
will be recommended in a financial publication. They find no evidence of
bias for The Wall Street Journal or The New York Times, but evidence consistent
with bias for Kiplinger’s, Money, and Smart Money. Interestingly, many of
the caught articles in my sample are found in The Wall Street Journal and
its related Dow Jones Newswire (14 articles each), and The New York Times
also provides one article. There are no articles in the three magazines with
evidence consistent with bias in the Reuter and Zitzewitz [2003] study. Advertising
spending may impact some publications, with the remaining outlets
continuing to serve a monitoring function.43
Table 6 provides strong evidence that fraud characteristics are associated
with the likelihood of an article. Frauds that involve a large number of individuals
are statistically more likely to result in an article in all specifications.
Similarly, the dollar magnitude of the fraud is a significant predictor in all#p#分页标题#e#
tests other than the logit that includes market value of equity. Given the
high correlation between these variables, the lower significance in that regression
is not surprising.44 Frauds that involve public misleading statements
are more likely to result in an article being written. Frauds that involve misappropriation
of funds are also more likely to result in an article, consistent
with the press finding deviant stories more newsworthy.
As a robustness test, each statistical analysis is reperformed randomly
excluding approximately 5% of the sample. Results are consistent with those
presented in the paper.
The results that both firm and fraud characteristics are important suggest
that there may be an interaction between these variables. Ex ante, it
is difficult to predict whether it is complementary (larger firms and more
interesting fraud are required) or a substitute (either large firm or interesting
fraud). Accordingly, I recalculate all tests including an indicator variable
43 This conjecture is also consistent with a Neiman Foundation survey of members of the
press. The journalist surveyed voted The New York Times and Washington Post as doing the best
job of watchdog journalism, followed by The Wall Street Journal. The votes for other outlets were
not given. See the Neiman Web site for details of this survey.
44 I use the total magnitude of the fraud, rather than a deflated number, since the press is
most likely to focus on the undeflated number. If I deflate by assets (or market value of equity
when assets are not available), the variable is generally not significant. Other variables are not
impacted. I also replace the magnitude of the fraud with the market response to the official
announcement of an issue. Given the large number of missing observations, I perform this
calculation using available data and also with multiple imputations to generate data for firms
with missing returns (Yuan [2005]). I find that articles are more likely if there was a more
negative market response. Results for the other variables are similar to those reported, except
under a few specifications results for analysts become significant while those for auditors and
theft weaken.
PRESS AS WATCHDOG 1029
for high (low) visibility, which is coded as one if the firm is in the top (bottom)
quartile of the visibility measure (PRESSINT, ANALYST, MV ). The
indicator variable is interacted with each of the fraud variables and run separately
for high/low visibility. In general, the (untabulated) results do not
find support for interactions. The only consistent exception is low visibility
interacted with publicly misleading statements. The negative coefficient on
that variable indicates that publicly misleading statements are less likely to
impact coverage for less visible firms.
Finally, I also perform regressions comparing articles that are based on#p#分页标题#e#
reporter-generated analysis with those that rebroadcast from other information
intermediaries. I find no statistical difference. However, given the small
size of this sample, power is likely an issue.
Overall, the evidence in this section indicates that the press publishes
articles regarding accounting fraud consistent with a cost/benefit maximization.
This suggests that the press may be a more effective watchdog for
some types of firms and frauds than for others.
5. Conclusion
Academic research on the press’s role in commerce has been limited
(Zingales [2000]). The evidence that does exist provides a conflicting
portrait of the press. Some studies suggest that the press provides little
useful analysis, instead focusing on entertainment value and sensationalism
(Jensen [1979], Core, Guay, and Larcker [2005], Dyck and Zingales
[2002b]). Other studies find that, at the macro level, the press is an important
factor in impacting economic development and corporate governance
(Djankov et al. [2002], Dyck and Zingales [2002a], Dyck, Volchkova, and
Zingales [2005]).
In this paper, I study press coverage of a group of firms that have been
involved in accounting malfeasances. This firm-level examination of press
involvement in a highly technical area of analysis provides an opportunity
to greatly enhance our understanding of whether and how the press contributes
to financial information flows. Specifically, I examine whether the
press is involved in the early public identification of accounting malfeasances,
whether that identification is based on original analysis or rebroadcasting,
the information content, and whether the press is systematically
biased regarding the type of firms it covers.
Using a sample of firms sanctioned by the SEC for accounting malfeasances,
I find that the press is involved in early public identification in 29%
of the cases. Many articles rebroadcast allegations made by other information
intermediaries (analysts, auditors, and lawsuits), but there is also a
substantial number of articles based on press analysis. The press analysis
articles provide new information to the capital markets, while articles that
rebroadcast information from other intermediaries do not. Consistent with
a dual role of the press, I find that publications and authors that are likely
to specialize in business information are also more likely to provide articles
1030 G. S. MILLER
that rely on reporter-based analysis, while more general press outlets almost
exclusively rebroadcast from other information intermediaries.
An analysis of the types of firms and frauds that receive press coverage
finds systematic biases in press coverage. These biases are consistent with
the press trading off the costs of identifying frauds with the benefits of
providing interesting articles that will attract a wide range of readers. On#p#分页标题#e#
the firm level, more visible firms and those with auditor changes are more
likely to receive an article. Both of these are consistent with a reduced cost
of reporting, and more visible firms are also likely to attract a larger audience.
Consistent with this cost/benefit model, there are also several characteristics
at the fraud level that impact the likelihood of an article. I find
that the press is more likely to write an article when the fraud involves a
large number of people who may provide information to the press, consistent
with a higher potential for leaked information and thus lower cost
of analysis. Further, the press is more likely to cover large frauds, as the
egregious nature of these frauds is likely to capture reader attention. The
press is also more likely to cover firms when there is a misleading public
statement. Such statements may attract the press’s attention initially, thus
reducing search costs. This high ex ante visibility also suggests a subsequent
article will have a large prospective reader base. As further evidence of
the press’s desire to cover frauds the public finds compelling, the press
is more likely to write an article if managerial misappropriation of funds has
occurred.
This paper provides evidence regarding the role of the press as a watchdog
for accounting fraud. In addition to contributing to our understanding
of how accounting fraud is brought to the public’s attention, this setting
allows an examination of how the press undertakes reporting that involves
analyzing and understanding highly technical information. This setting provides
a strong research design for establishing a greater understanding of
the press’s informational role in general. However, several caveats apply.
First, cross-sectional analysis of press coverage at the firm level is inherently
subject to a large number of judgments in coding data. Prior research
has either focused primarily on country-level data or used clinical studies
examining only one firm in one unique situation. While this has avoided
many of the judgment issues, it also makes it difficult to develop an understanding
of press activities. Second, my sample relies on firms being
identified as having inappropriate accounting by the SEC and having an
AAER written regarding that accounting. These are likely extreme cases of
malfeasances, and thus readers should be careful in attempting to generalize
these results to the population as a whole. Third, the SEC likely investigates
firms that have been identified in the press as engaging in some form of
accounting malfeasances. In that case, the proportion of firms “caught” by
the press may be overstated. That is, many other frauds may have occurred
and remain undetected by either the press or the SEC. Again, this suggests#p#分页标题#e#
readers should use caution when trying to generalize to the population of
firms.
PRESS AS WATCHDOG 1031
A P P E N D I X 1
Definition of Variables Presented in Order They Appear in Tables
Panel A: Early identification of fraud
Variable Name Definition/Source
CAUGHT Indicator variable coded as one if the press writes an article
alleging accounting malfeasances prior to a company or SEC
announcement regarding an issue. Articles and management
disclosures were identified through a Factiva search.
Reporter Generated Information Indicator variable coded as one if the article indicates the argument
for an accounting issue is based on reporter analysis rather than
reports from information intermediaries. This includes analysis
of SEC documents, financial statements, firm disclosures, and
tips from customers, industry insiders, anonymous sources, etc.
Coded based on review of the article retrieved from Factiva.
Analyst Indicator variable coded as one if the article indicates the
argument for an accounting issue is based on rebroadcasting
analysts’ allegations. Coded based on review of the article
retrieved from Factiva.
Legal cases Indicator variable coded as one if the article indicates the
argument for an accounting issue is based on rebroadcasting
lawsuits or public criminal investigation. Coded based on review
of the article retrieved from Factiva.
Auditor Resignation Indicator variable coded as one if the article indicates the
argument for an accounting issue is based on rebroadcasting
auditor resignations. Coded based on review of the article
retrieved from Factiva.
National Business Indicator variable coded as one if the article was published in a
periodical focused on business with national
coverage/readership. Examples include The Wall Street Journal
and Fortune. Coded based on review of the article retrieved from
Factiva.
Local Market Indicator variable coded as one if the article was published in a
periodical that covers general news with predominately local
coverage/readership. Examples include The San Francisco
Chronicle and Chicago Sun-Times. Coded based on review of the
article retrieved from Factiva.
Electronic Business Indicator variable coded as one if the article was published by an
electronic wire service focused on business. Examples include
Dow Jones Newswire and Bloomberg. Coded based on review of
the article retrieved from Factiva.
Trade Publications Indicator variable coded as one if the article was published in a
periodical that covers specialized industry news. Examples
include Boating Industry and Business Insurance. Coded based on
review of the article retrieved from Factiva.
National Non-business Indicator variable coded as one if the article was published in a#p#分页标题#e#
periodical that covers general news with predominately national
coverage/readership. Examples include USA Today and The New
York Times. Coded based on review of the article retrieved from
Factiva.
Recur Indicator variable coded as one if the article is from a column that
is published by a single reporter/set of reporters on a regular
basis. Coded based on review of the article retrieved from Factiva.
Non-recur Indicator variable coded as one if the article is not from a column
that is published by a single reporter/set of reporters on a
regular basis. Coded based on review of the article retrieved
from Factiva.
1032 G. S. MILLER
A P P E N D I X 1—Continued
Panel B: Firm and fraud characteristics
Variable Name Definition/Source
PRESSINT A measure of the level of press coverage during the period of
fraud. Calculated as total number of press articles during the
period of the fraud divided by number of months in the fraud.
Number of press articles was retrieved from a Factiva search.
ANALYST Indicator variable coded as one if the firm is in the top quartile of
analysts following for the sample. Analyst coverage based on
I/B/E/S.
MV The log of market value measured in billions. Market value is
measured on the last day of the violation period and is obtained
from CRSP.http://www.ukassignment.org/Accounting_Essay/
AUDITOR Indicator variable coded as one if the auditor changes during the
period of the fraud or within one year following the fraud.
Auditor changes are identified using Compustat. A Factiva search
was also performed if auditor status was unclear on Compustat.
BIGAD Indicator variable coded as one if the firm is in an industry that was
in Advertising Age’s top 15 advertisers for 1985, 1990, 1995, and
2000.
NUMINV The number of people indicated as involved in the fraud by the
SEC. Calculated by summing participants across all SEC AAER
related to the fraud.
AMOUNT The log of the sum of the dollar amount of violations. Calculated
by summing amounts in all SEC AAER related to the fraud.
MISLEAD An indicator variable coded as one if the fraud included a
materially misleading public statement or report. Calculated by
reviewing all SEC AAER related to the fraud.
STEAL An indicator variable coded as one if management
misappropriated funds through stock trades, bonus plans, or
outright theft during the fraud. Calculated by reviewing all SEC.
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