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Riding a Tiger without Being Eaten How Companies and Analysts Tame Financial Restatements and Influence Corporate Reputation Riding a Tiger without Being Eaten Hoe bedrijven en analisten Financial Restatements temmen en de ondernemeningsreputatie beïnvloeden Proefschrift ter verkrijging van de graad van doctor aan de Erasmus Universiteit Rotterdam op gezag van de rector magnificus Prof. dr. S.W.J. Lamberts en volgens besluit van het College voor Promoties. De openbare verdediging zal plaatsvinden op dinsdag 16 juni 2009 om 16.00 uur door Hendrik Frederikus Maria Gertsen geboren te Winterswijk
Promotiecommissie Promotor: Prof.dr. C.B.M. van Riel Overige leden: Prof.dr. G.M.H. Mertens Prof.dr. L. G. van der Tas Prof.dr. J. Kleinnijenhuis Erasmus Research Institute of Management – ERIM Rotterdam School of Management (RSM) Erasmus School of Economics (ESE) Erasmus University Rotterdam Internet: http://www.erim.eur.nl ERIM Electronic Series Portal: http://hdl.handle.net/1765/1 ERIM Ph.D. Series Research in Management, 171 Reference number ERIM: EPS-2009-171-ORG ISBN 978-90-5892-214-4 DESIgn Cover: B&T Ontwerp en advies, www.b-en-t.nl Lay-out: 2 op 10B - Femke van der Stoep Cover Illustration: Tsongkhapa as a Mahasiddha (Tibet, ca. 19th century), pigments on cloth, 29,5 x 19 inches / collection Rubin Museum of Art, New York PRInt Haveka www.haveka.nl © 2009, Fred Gertsen All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without permission in writing from the author.This dissertation and the views and opinions expressed therein, are based solely on independent academic research, and do not in any way, represent the views and opinions of the firm, with which the author is professionally associated.
Page 1 and 2: FRED H.M. GERTSEN Riding a Tiger wi
Page 8 and 9: Acknowledgments Boundary spanning c
Page 10 and 11: neighbours with Thomson Financial (
Page 13 and 14: 12 Table of Contents Acknowledgment
Page 15 and 16: 14 3.2.2 Nature of Analysts’ Expe
Page 17 and 18: 16 List of Figures Figure 1.1 Numbe
Page 19 and 20: 18 List of Tables Table 1.1 Inciden
Page 22 and 23: Introduction and theoretical backgr
Page 25 and 26: 24 Chapter 1 1.1 Introduction and H
Page 27 and 28: 26 look after the interests of stak
Page 29 and 30: 28 and pride. Mandeville writes:
Page 31 and 32: 30 associated with their views on r
Page 33 and 34: 32 period adjustment by restating t
Page 35 and 36: 34 by 71 per cent on average (as me
Page 37 and 38: 36 Next to these reports, which wer
Page 39 and 40: 38 the new millennium, considered p
Page 41 and 42: 40 cent in 2005. Also in the same p
Page 43 and 44: 42 1997-2006’ (Scholz, 2008); com
Page 45 and 46: 44 Lieberman put it in an October 2
Page 47 and 48: 46 major accountability breakdowns
Page 49 and 50: 48 1.3 Review of Academic Studies i
Page 51 and 52: 50 measured in basis points over Li
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52 of poor governance have been add
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54 accurate corporate financial sta
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56 1.3.6 restatements and contagion
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58 after having been dismissed, the
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60 Wall Street Journal was the whis
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62 CEO job demands, and factors rel
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64 illustrations and Figures Figure
Page 67 and 68:
66 table 1.1 iNcideNce oF restateme
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68 (Wiesenfeld, Wurthmann, & Hambri
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70 personality traits that people a
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72 Figure 1.5 reputatioN aNalyses b
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74 surface. A celebrity CEO receive
Page 77 and 78:
76 Financial statements also serve
Page 79 and 80:
78 For our purposes, important driv
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80 Figure 1.6 study overview backgr
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82 Therefore, our first research qu
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84 of senior management, independen
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86 American Institute of Certified
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88 and explain the context of the C
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90 Chapter 2 Study 1: Restatement C
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92 • Effects on market capitaliza
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94 2.2 Theoretical Framework: Class
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96 Figure 2.1 perceived iNteNt aNd
Page 99 and 100:
98 2.3 Methods We developed our cla
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100 memos in various levels. This s
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102 at the beginning of the crisis.
Page 105 and 106:
104 Figure 2.3 issues iNFlueNciNg p
Page 107 and 108:
106 leads to a questioning of the c
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108 communication most likely leads
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110 able to withstand such mounting
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112 to errors made in the past on s
Page 115 and 116:
114 What is remarkable is the relat
Page 117 and 118:
116 Anderson, Mansi & Reeb, 2004).
Page 119 and 120:
118 was executive responsibility fo
Page 121 and 122:
120 Compliance with standards and c
Page 123 and 124:
122 and standalone companies…, 12
Page 125 and 126:
124 to provide an estimate of the e
Page 127 and 128:
126 Although Freddie Mac’s restat
Page 129 and 130:
128 is too high for most executives
Page 131 and 132:
130 2.6 Conclusions and Discussion
Page 133 and 134:
132 Chapter 3 Study 2: Analysts’
Page 135 and 136:
134 Compustat database. However, st
Page 137 and 138:
136 3.2 Theoretical Framework and P
Page 139 and 140:
138 employers and anyone who uses a
Page 141 and 142:
140 marketplace. Contrary to other
Page 143 and 144:
142 Stracca (2004: 383) notes: A si
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144 In determining financial report
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146 other, the degree to which anal
Page 149 and 150:
148 Conversely, regarding the secon
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150 incentives from option compensa
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152 d. There is excessive pressure
Page 155 and 156:
154 3.3.4 HyPotHeses ceo dominance
Page 157 and 158:
156 Hambrick (2007) notes that this
Page 159 and 160:
158 H7a: The more competent the ana
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160 high degree of pressure on the
Page 163 and 164:
162 reporting. Their research exten
Page 165 and 166:
164 3.4 Analysts’ Survey Design a
Page 167 and 168:
166 of significant restatement comp
Page 169 and 170:
168 Therefore, it was to be expecte
Page 171 and 172:
170 covering a part of the model as
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172 (which we label Period B). Howe
Page 175 and 176:
174 A six-point Likert-type scale w
Page 177 and 178:
176 continuAtion tABle 3.1 reliABil
Page 179 and 180:
Page 181 and 182:
Page 183 and 184:
182 were posed for the restatement
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184 resolution period. Therefore, w
Page 187 and 188:
186 to which the CEO provided adequ
Page 189 and 190:
188 Earnings Management Pressures T
Page 191 and 192:
190 announcement. Nevertheless, we
Page 193 and 194:
192 table 3.5 Factor loadiNgs bouNd
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194 items loaded on the factors rep
Page 197 and 198:
196 3.5 Analysis of Survey Results
Page 199 and 200:
198 In Table 3.9, it can be seen th
Page 201 and 202:
200 table 3.10 comparisoN oF meaNs
Page 203 and 204:
table 3.11 comparisoN oF meaNs For
Page 205 and 206:
204 blame taking behaviour, or blam
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206 the CEO do not have a significa
Page 209 and 210:
208 Influence of restatement severi
Page 211 and 212:
210 table 3.17 meaNs oF coNstructs
Page 213 and 214:
212 table 3.18 overview oF hypothes
Page 215 and 216:
214 Regarding the other factors tha
Page 217 and 218:
216 measurement by the same instrum
Page 219 and 220:
218 Chapter 4 Study 3: Interviews w
Page 221 and 222:
220 functioning of a CEO. We will c
Page 223 and 224:
222 We split the factors for this i
Page 225 and 226:
224 and Kubik (2003) find that job
Page 227 and 228:
226 4.3 Methods The 23 in-depth int
Page 229 and 230:
228 4.3.2 Procedures and interview
Page 231 and 232:
230 You were involved with the (Com
Page 233 and 234:
232 4.4 Data Analysis and Empirical
Page 235 and 236:
234 4.4.3 interview results and tab
Page 237 and 238:
236 CEO Qualities (Q5 How did the f
Page 239 and 240:
238 Surprised about restatement (Q
Page 241 and 242:
240 Red flags (Q 13 In hindsight, w
Page 243 and 244:
242 4.6 Conclusions and Discussion
Page 245 and 246:
244 Chapter 5 Overall Conclusions a
Page 247 and 248:
246 avoid reputation damage, both a
Page 249 and 250:
248 This chapter will continue as f
Page 251 and 252:
250 5.2 Key Findings from Our Studi
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252 and gatekeepers (including anal
Page 255 and 256:
254 of Investigations, 2002) and Po
Page 257 and 258:
256 prior awareness of all of the i
Page 259 and 260:
258 Legislators and regulators have
Page 261 and 262:
260 while negative events are attri
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262 1. Encourage companies to provi
Page 265 and 266:
264 Figure 5.2 aNalysts oNly: Norma
Page 267 and 268:
266 5.4 Discussion Themes 5.4.1 wHa
Page 269 and 270:
268 profession management aspects,
Page 271 and 272:
270 with standards or procedures. A
Page 273 and 274:
272 Corporate dishonesty has also b
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274 information they receive from e
Page 277 and 278:
276 and contractual parameters of t
Page 279 and 280:
278 from overconfidence (Daniel et
Page 281 and 282:
280 5.6 Managerial Implications We
Page 283 and 284:
282 • Convening bilateral and/or
Page 285 and 286:
284 5.7 Limitations of This Study F
Page 287 and 288:
286 This brings us to the next limi
Page 289 and 290:
288 crisis they have suggested how
Page 291 and 292:
290 AICPA auditing standards board
Page 293 and 294:
292 References Abarbanell, J., & Le
Page 295 and 296:
294 Berens, G., van Riel, C., & van
Page 297 and 298:
296 Coffee Jr., J. 2001. The Acquie
Page 299 and 300:
298 Efendi, J., Srivastava, A., & S
Page 301 and 302:
300 Glaser, B., & Strauss, A. 1967.
Page 303 and 304:
302 Huron Consulting Group. 2005. 2
Page 305 and 306:
304 Loebbecke, J., & Willingham Jr.
Page 307 and 308:
306 Prentice, R. 2007a. Ethical Dec
Page 309 and 310:
308 Sun, P., & Zhang, Y. 2006. Is T
Page 311 and 312:
310 Appendices Appendix 1.1 Materia
Page 313 and 314:
312 Appendix 1.2 The Subprime Mortg
Page 315 and 316:
314 Appendix 2.1 Timelines Freddie
Page 317 and 318:
316 Appendix 2.2 Coding Scheme OPEN
Page 319 and 320:
318 codiNg scores by positive aNd N
Page 321 and 322:
320 Appendix 3.1 Analysts Survey Ap
Page 323 and 324:
322 Appendix 3.1 Analysts Survey
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Page 351 and 352:
350 Appendix 3.2 Analysts’ Survey
Page 353 and 354:
352 Construct Item number Item name
Page 356 and 357:
Samenvatting ‘Financial Statement
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gebaseerd op historische dataverzam
Page 360 and 361:
Earnings Management Pressures & Job
Page 362 and 363:
Op basis van literatuur studie over
Page 364 and 365:
Erasmus Research Institute of Manag
Page 366 and 367:
Damen, F.J.A., Taking the Lead: The
Page 368 and 369:
Heuvel, W. van den, The Economic Lo
Page 370 and 371:
Le-Duc, T., Design and Control of E
Page 372 and 373:
Noeverman, J., Management Control S
Page 374 and 375:
Six, F.E., Trust and Trouble: Build
Page 376:
Watkins Fassler, K., Macroeconomic
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