Competition and Financial Accounting Misreporting

We show that, on average, product market competition acts as a disciplining force constraining managers from misreporting accounting information. Further, in a quasi-natural experiment that uses shifts in import tariffs to identify intensification of competition, difference-in-difference estimations support the disciplining effect of competition on misreporting. Our findings are robust across alternate measures of misreporting including restatements and accounting irregularities as well as to measures of product market competition including those based on the U.S. Census data