and control gives rise to information asymmetries between managers and outside
shareholders (Berle and Means, 1932; Jensen and Meckling, 1976) which provides
incentives to the managers to supply biased financial information with the intent of
exploiting outside shareholders. Empirical evidence suggests that resource
mis-allocation can occur when investors fail to detect such biased reporting. For
example, Beneish (1997) finds some evidence of significant abnormal returns from a
trading strategy based on an opportunistic generally accepted accounting principles
(GAAP) violation.