Managerial reporting, overoptimism, and litigation risk
AbstractWe examine how the threat of litigation affects an entrepreneur's reporting behavior when the entrepreneur (i) can misrepresent his privately observed information, (ii) pays legal damages out of his own pocket, and (iii) is optimistic about the firm's prospects relative to investors. We find higher expected legal penalties imposed on the culpable entrepreneur do not always cause the entrepreneur to be more cautious but instead can increase misreporting. We highlight how this relation depends crucially on the extent of entrepreneurial overoptimism, legal frictions, and the internal control environment.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Accounting and Economics.
Volume (Year): 53 (2012)
Issue (Month): 3 ()
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Web page: http://www.elsevier.com/locate/jae
Mandatory disclosure; Litigation; Overoptimism;
Find related papers by JEL classification:
- K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- M41 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Accounting
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