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Finance Professors Recognized for Outstanding Scholarship
April 12, 2007
DURHAM, N.C. -- Duke MBA Finance Professors Campbell R. Harvey and John R. Graham, along with co-author Shiva Rajgopal of the University of Washington, received a Graham and Dodd Scroll award from the Financial Analysts Journal advisory council and editorial board.
The professors’ paper “Value Destruction and Financial Reporting Decisions,” was published in the November/December 2006 Financial Analysts Journal.
The article makes the remarkable finding, based on a survey of 400 senior executives, that 78 percent of U.S. CFOs would sacrifice long-term shareholder value to smooth earnings. The study finds widespread use of ‘real’ earnings management, which is managing the quarterly earnings by altering the firms’ investments (such as research and development and advertising).
Graham, Harvey and Rajgopal find that this real earnings management seems to be more prevalent than accounting-based management in the post Sarbanes-Oxley world. They argue the amount of value routinely destroyed by companies striving to hit earnings targets exceeds the value lost in recent high-profile fraud cases.
Harvey and Graham have both been honored with Graham and Dodd Scroll awards in the past. This is Harvey’s fifth paper, and Graham’s second, to receive the honor.