Technological Evolution and the Devolution of Corporate Financial Reporting

The role of technological evolution as a potential causal factor in the recent financial scandals has not yet been fully explored. This paper looks at technology-induced changes in the issuers' marketplace environment, in the trading behavior of investors and in the tools employed by technology-oriented firms to make the case that motive, opportunity and the potential for rationalization of less-than-candid financial reporting were intensified by these trends. In particular, these forces suggest that some sizable portion of financial misreporting was not selfish on the part of managers but a predictable feedback loop generated by competitive forces. If so, there are important lessons to be learned with respect to the appropriate forms of (and forums for) deterrence, as well as with respect to on-going debates about the philosophy of financial reporting.