Recent corporate governance failures have prompted regulators and legislators to introduce new rules and legislation aimed at improving corporate governance. In this paper, I highlight a potential unintended consequence of such actions by showing that increasing oversight may sometimes be the catalyst for more manipulation. The key behind this result is the managers' potential ability to undermine oversight through manipulation choices. Absent an interaction between manipulation choices and oversight efficacy, increasing oversight results in less manipulation.
JEL Classifications: D80; G34; M40.