The University of Indiana's Messod D. Beneish, in a paper he co-authored with Temple University's Eric Press and Drexel University's Mark E. Vargas, investigated debt contract and insider trading incentives for income-increasing earnings management in a sample of 462 firms that experienced technical default from 1983 to 1997.

Beneish, who in the 1990s introduced to academia , provided CFOWorld.com with a copy of this latest effort. The paper will appear next year in .

In the new paper, the authors find that while more than half (57%) the companies they looked at saw their managers refrain from both insider trading and earnings management prior to default, most of the remainder were found to trade "at a distance from default and contemporaneously increase earnings."

Pumping up earnings numbers well after dumping shares means that these managers see their firms "experience no stock market losses in the period preceding default, which makes litigation less likely."

Beneish, Press and Vargus pointed to this tendency to "dump and pump" as a "possible unintended consequence" of Sarbox provisions that require disgorgement of bonuses and trading profits "following misstatements," because managers may seek to avoid legal trouble by creating a "one-year buffer" between their selling and future bad news.