Cockroach Problem/Principle

Term used either to describe companies or groups that announce bad news repeatedly or in such a way as to indicate that there might be more bad news to come, or a problem which indicates that there may be more of the same class of issue, i.e., problems that are bigger and more prolific and widespread than they first appear. Derived from the idea that if one spots a single cockroach, there are always many more that one cannot see.

The Cockroach Principle is a related euphemism used by securities analysts that suggest that by the time law and regulation forces a public company to disclose a problem, especially an accounting problem, there are usually more and perhaps worse disclosures coming. This may be accelerated by the calling in of an independent law firm and accountants other than the regular lawyers and audit firm – lacking any prior relationship or past work to protect, they have every incentive to find anything and everything that hitherto-fore has been concealed or obfuscated.


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