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Formerly Graduate
School of Industrial Administration (GSIA) William Larimer Mellon, Founder Schenley Park Pittsburgh, Pennsylvania 15213-3890 United States of America |
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Pierre Jinghong Liang |
Accounting Recognition, Moral Hazard, and Communication |
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Pierre Jinghong Liang
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Contemporary Accounting Research vol. 17 no. 3, (Fall 2000) p. 457-90 |
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| Downloading the paper | ||||
| 2000-Jan Draft | ||||
| Abstract: | ||||
| Two complementary sources of information are studied in a multi-period agency model. One is an accounting source which partially but credibly conveys the agent's private information through accounting recognition. The other is an unverified communication by the agent (i.e., a self-report). In a simple setting with no communication, alternative labor market frictions lead to alternative optimal recognition policies. When the agent is allowed to communicate his private information, accounting signals serve as a veracity check on the agent's self-report. Finally, such communication sometimes makes delaying the recognition optimal. We see contracting and confirmatory roles of accounting as its comparative advantage. As a source of information, accounting is valuable because accounting reports are credible, comprehensive, and subject to careful and professional judgment. While other information sources may be more timely in providing valuation information about an entity, audited accounting information, when used in explicit or implicit contracts, ensures the accuracy of the reports from non-accounting sources. | ||||
| English Version Last updated May 2, 2005 send comments to liangj@andrew.cmu.edu |
Chinese Version Last updated January 6, 2004 send comments to liangj@andrew.cmu.edu |
