DETECTING FALSE ACCOUNTS IN INTERMEDIATED VOLUNTARY DISCLOSURE

Intermediated voluntary disclosure is a rapidly diffusing practice that addresses broad stakeholder demand for credible information transparency on corporate policies and performance along dimensions of societal interest. Building upon substantial literatures on proprietary disclosure, research has begun to rigorously document antecedents and outcomes of intermediated disclosure. However, theory remains relatively silent on how two important aspects of this mechanism-lack of audit oversight and provision of evaluative ratings-create incentives for uptake of an overlooked mode of misleading disclosures: false accounts. Moreover, research has not definitively addressed the degree to which intermediated voluntary disclosures are verifiable or truthful, nor the associated significance for long-term institutional credibility. This study uses forensic analysis of detailed corporate disclosures to one prominent intermediary to develop and validate novel constructs that establish evidence of false claims. Our findings demonstrate that firms routinely manipulate intermediary ratings with false claims, undermining institutional and societal goals. The results identify several factors that may improve ability to differentiate substantive firm performance from false accounts. This study contributes to our understanding of firm incentives and strategies for engagement with voluntary mechanisms and the ability of those practices to improve governance; it also identifies new opportunities for theoretical and empirical research.