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Overstatement and rational market expectation

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Author Info

  • Kwon, Illoong
  • Yeo, Eunjung

Abstract

When an agent overstates his/her true performance, a rational market can still correctly guess the true performance. This paper shows, however, that such rational market expectation and a profit-maximizing principal can exacerbate the lack of productive effort by the agent.

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File URL: http://www.sciencedirect.com/science/article/B6V84-4VWB13V-2/2/ba397156d03dfb79c8263b1f612ab004
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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 104 (2009)
Issue (Month): 1 (July)
Pages: 9-12

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Handle: RePEc:eee:ecolet:v:104:y:2009:i:1:p:9-12

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Web page: http://www.elsevier.com/locate/ecolet

Related research

Keywords: Overstatement Rational expectation Moral hazard;

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References

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  1. Bergstresser, Daniel & Philippon, Thomas, 2006. "CEO incentives and earnings management," Journal of Financial Economics, Elsevier, vol. 80(3), pages 511-529, June.
  2. Lacker, Jeffrey M & Weinberg, John A, 1989. "Optimal Contracts under Costly State Falsification," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1345-63, December.
  3. Stein, Jeremy C, 1989. "Efficient Capital Markets, Inefficient Firms: A Model of Myopic Corporate Behavior," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 655-69, November.
  4. Illoong Kwon & Katherine Guthrie & Jan Sokolowsky, 2008. "On the Objective of Corporate Boards: Theory and Evidence," Discussion Papers 08-08, University at Albany, SUNY, Department of Economics.
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Cited by:
  1. Bo Sun, 2011. "Limited market participation and asset prices in the presence of earnings management," International Finance Discussion Papers 1019, Board of Governors of the Federal Reserve System (U.S.).
  2. Illoong Kwon & Katherine Guthrie & Jan Sokolowsky, 2008. "On the Objective of Corporate Boards: Theory and Evidence," Discussion Papers 08-08, University at Albany, SUNY, Department of Economics.

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