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We examine the governance characteristics, earnings quality, growth rates, dividend policy, and compensation structure of 97 firms recently under investigation by the Securities and Exchange Commission (SEC) for accounting fraud. Our results show that the corporate environment most likely to lead to an accounting scandal manifests significant growth and accounting practices that are already pushing the envelope of earnings smoothing. Firms operating in this environment seem more likely to tip over the edge into fraud if there are fewer outsiders on the audit committee and outside directors appear overcommitted. Copyright 2007, The Eastern Finance Association.

In the past decade, institutional investors have become more active in monitoring man- agement and voting the shares they control. The California Public Employees' Retirement System (CaIPERS) was a leader in this wave of activism. This study investi- gates the long-term returns an investor with public information could earn by buying a portfolio offirms targeted by CaIPERS and whether the success of CaIPERS' activism depends on the aggressiveness of the targeting. The evidence supports the idea that vis- ible and aggressive activism leads to substantial increases in shareholder wealth while a quieter activism does not.

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.. Wiley and Financial Management Association International are collaborating with JSTOR to digitize, preserve and extend access to Financial Management.Abstract: In this study, we examine the relation between the medium of exchange (cash or stock) and valuation effects associated with terminated merger proposals. We find significantly higher returns for target shareholders after termination of cash offers than after termination of stock offers. This difference persists even when a subsequent merger bid does not follow and regardless of the following factors: the party deciding to terminate the offer, the presence of an acquisition program, prior foothold position, relative size of the acquisition, or the presence of competing offers. We conclude that target firm shares are revalued according to private information signaled by the offer medium that pertains to the target firm's stand-alone value or its unique synergy potential. Bidding firm shareholders experience insignificant returns, and these returns are not affected by any of the factors analyzed. E Research reveals significantly higher valuation effects accompanying cash merger offers for both target and bidding firms than the valuation effects accompanying stock offers (Asquith, Bruner, and Mullins (1983), Wansley, Lane, and Yang (1983), Huang and Walkling (1987), Travlos (1987), Franks and Harris (1989), Murphy and Nathan (1989), and Eckbo, Giammarino, and Heinkel (1990)). There is also research on the persistence of value changes. At termination of a takeover bid, Dodd (1980) finds that target shares in target-canceled mergers are permanently revalued but that prices revert fully in the case of bidder-canceled mergers. Dodd and Ruback (1977) and Bradley (1980) also demonstrate a revaluation of target shares for canceled tender offers. Bradley, Desai, and Kim (1983), Fabozzi, Ferri, Fabozzi, and Tucker (1988), and Davidson, Dutia, and Cheng (1989) attribute this revaluation to anticipation of a subsequent offer, not to takeover type or terminating party. These studies do not address any permanent revaluation of target shares related to using a different offer medium. Do differences in the market's reaction to terminated merger proposals depend on the medium of exchange? We explore whether the difference in merger gains that is dependent on the offer medium can be explained by synergy, tax code incentives, or the presence of a financing or investment signal. The empirical support for the tax and the financing signal explanations has been based on reactions in the market at the time of the initial announcement of the merger offer. A study of terminated merger proposals provides an avenue for investigation of further explanati...

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