33 It is a little unfair to pick on accountantsalone in this
regard.Investment bankerswhodesign thespecial purpose
entitiesforfirmshavetheirownconflictsofinterestthatskew
the advice they offer to corporations.
34 Asaverysimpleexampleoftheconfusioncreatedbythe
mixing of capital and manufacturing divisions, the debt
reportedbythesecompaniesisoftenlarge(reflectingthedebt
of the capital arm).
35 Note that this is a far weaker test than issuing sell
recommendations.Analystsarereluctanttolowerfirmsfrom
a strong buy to a weak buy.
36 J.J.Chang,T.Khanna,andK.Palepu,“AnalystActivity
aroundtheWorld,”HarvardBusinessSchoolworkingpaper,
2003.Theyfind thatanalystactivitycontributes to making
financial statements more transparent, even in complex firms.
37 A.J. Felo, S. Krishnamurthy,and S. A.Solieri, “Audit
Committee Characteristics and the Perceived Quality of
FinancialReporting:AnEmpiricalAnalysis,”workingpaper,
SSRN,2003.Theyfindthatauditcommitteeswithahigher
percentageofmemberswithaccountingexpertiseimprovethe
quality of financial reports.
38 Source:Standard & Poor’s.