The corporate scandals of the last year have left regulators and Congress working overtime on remedies such as better accounting standards and tougher penalties for renegade executives. But stock investors could use something else: an advance warning system to identify potential threats. Is there a way to tell, ahead of time, which publicly traded companies are most likely to cook the books? There’s no perfect system, but Wharton accounting professors Scott Richardson and Irem Tuna identify some key risk factors in a new paper entitled, “Predicting Earnings Management: The Case of Earnings Restatements.”
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