2021 - Reprints: Finance, Accounting and Insurance
Enforcement of optimal disclosure rules in the presence of moral hazard, European Accounting Review, 29(4), 825-849, 2020
T. Versano
(Reprint no. 385)
Research no. : 02780100
This paper analyzes the role of disclosure enforcement mechanisms (such as SEC enforcement teams and corporate governance systems) in directing the disclosure practices of managers when the information is used by shareholders to monitor the manager. The paper establishes a role for a disclosure enforcement system by showing that in its absence it is impossible to simultaneously induce a manager to adopt the desirable disclosure strategy and use the disclosure efficiently to monitor him. The paper shows how the effectiveness of the disclosure enforcement system and the cost of disclosure influence (i) the economic viability of the disclosure enforcement system, (ii) the disclosure policy of the manager, and (iii) the value of including stock options in the manager’s compensation package.
Cross-firm real earnings management, Journal of Accounting Research, 56(3), 883-911, 2018
E. Einhorn, N. Langberg and T. Versano
(Reprint no. 386)
Research no. : 02790100
Our analysis is rooted in the notion that stockholders can learn about the fundamental value of any firm from observing the earnings reports of its rivals. We argue that such intraindustry information transfers, which have been broadly documented in the empirical literature, may motivate managers to alter stockholders’ beliefs about the value of their firm not only by manipulating their own earnings report but also by influencing the earnings reports of rival firms. Managers obviously do not have access to the accounting system of peer firms, but they can nevertheless influence the earnings reports of rival firms by distorting real transactions that relate to the product market competition. We demonstrate such managerial behavior, which we refer to as cross-firm real earnings management, and explore its potential consequences and interrelation with the practice of accounting-based earnings management within an industry setting with imperfect (nonproprietary) accounting information.
