If the business press is the public’s watchdog on corporate fraud, there seems to be cause for concern.

A new Harvard study on “watchdog” business reporting—the first of its kind—details how rarely the financial press uncovers wrongdoing on its own. How rarely?

In the December 2006 issue of the Journal of Accounting Research, one of our favorites here at The Audit, after Guns & Ammo, Professor Gregory Miller measures the frequency with which journalists beat the Securities and Exchange Commission (SEC) at uncovering accounting fraud. It’s worth noting that by “beat” the professor simply means breaking the news of the alleged wrongdoing, not necessarily discovering it.

And while beating the SEC to an investigation is like beating Porky the Pig in a bicycle race up the Alps, we concede it’s not nothing.

In the piece, the first of what Miller says will be several research papers exploring the press’s role as a monitor of corporate malfeasance, he looks at which journalists most frequently accomplish this feat, what outlets they work for, who their sources are, and, finally, what impact their work has on the stock market. The answers Miller produced aren’t so much surprising as unprecedented, representing one of the most extensive attempts to audit business press performance. In order to get at the question of who barked first, he compares SEC “enforcement releases” alleging fraud with the results of an electronic archive search of nearly 8,000 publications, including wires, magazines, newspapers, and trade publications. Given the exploratory nature of the work, Miller resists the temptation to criticize or compliment contemporary journalism, leaving it to readers to decide. (Sort of like Fox News!)

We’re readers, by Odin’s beard, and so we shall!

Of the 263 cases of accounting fraud confirmed by the SEC between 1987 and 2002, almost a third—seventy-five cases—were alleged by the press before any official announcement from either the company or the SEC.

But before business reporters start slapping one another on the back, please note that the majority of these cases feature information either gift-wrapped by analysts or else dragged into the public realm by legal proceedings such as a shareholder lawsuit. Overall, Miller finds that most of the time when journalists “beat” the SEC, they are just doing the basics, “rebroadcasting” analysts’ research or covering the courts, as opposed to purposefully smoking out white-collar varmints.

And then one might consider that the entire business press—including Women’s Wear Daily—smokes out evildoers at a rate of five companies per year. There are more than 5,000 public companies in the U.S. If I’m a crooked CEO, I like those odds.

Truly extraordinary reporting endeavors are even more rare in this study, comprising just over 10 percent of all cases. These feature “reporter-based analysis,” which Miller describes as “the use of largely non-public sources to generate original information,” otherwise known as super-reporting of the kind one hopes would guarantee awards and inspire J-school case studies, maybe even a pulp novel character. For example, in the mid-1990s, San Francisco Chronicle columnist Herb Greenberg noticed a curious ad pushing specialized computer equipment at liquidation prices. Only a number was listed, so Greenberg dialed it and reached a Silicon Valley company that, upon further investigation, was double-talking: quietly liquidating a line of business while loudly issuing public statements of strong performance.

On average, share prices drop 12.6 percent in cases, like Greenberg’s, where the press introduces new and exclusive information, while stories based on information already in the public realm is met with “effectively no response” on the major stock exchanges, Miller says.

Tony Dokoupil co-authors the Research Report column for CJR. He’s a Ph.D. candidate in communications at Columbia’s Graduate School of Journalism.