Earnings manipulation leads to higher costs of capital for firms
The article looks at companies that got in trouble with the SEC for messing with their earnings. They found that companies faked their earnings to make it easier to get money from outside sources. Companies that did this were more likely to have bosses who were also in charge of the board, and less likely to have an audit committee or outside investors. When their tricks were exposed, these companies had to pay more to borrow money.