The Wall Street Journal reported on Friday (7/2 page C3) that Criterion Research Group in NY examined 3,500 non-financial companies over a 40 year period and found that the companies with the most aggressive accounting for accrued receipts faced four times as many class action (shareholder) lawsuits as the ones who had the least aggressive accounting practices.
What the study is referring to is how you would treat a wholesaler’s accounting for the sale of magazines to newsstands when the wholesaler accepts returns of unsold magazines. Aggressive accrual would mean you show income on say $100,000 of magazines the day they were shipped and show a negative income three months later when $40,000 worth are returned. A non-aggressive accounting might show only $50,000 in income when the magazines are shipped and add $10,000 more when the returns count arrives. Lawsuits happen more often to companies who do the first.
I love the outcome.
However I admit I have never heard of this research outfit, the data are not published, the criteria are not discussed in the article and in general, alternative explanations are not examined.
If this were known to be to be reliable research I would be exuberant. As it stands, the research just confirms my prejudice in favor of corporate accounting transparency.