Abstract:We investigate the impact of financial misreporting on peer firms’ operational efficiency, defined as a firm’s efficiency in converting investments into revenues. We find that, on average, peers’ operational efficiency declines after rival firms misstate their financial performance. However, we also find that the impact of financial misreporting is not homogeneous across peer firms. The negative effect is mainly driven by non‐misstating firms that had high performance. For firms that had lower past performance… Show more
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