Honesty and Intermediation : Corporate Cheating, Auditor Involvement and the Implications for Development
AbstractWe examine self-enforcing honesty in firm-investor relations in an imperfect public information game. Minimum firm size requirements and moral hazard limit ability to raise outside capital, yielding a floor on personal wealth required to enter entrepreneurship. Credible auditing could create efficiency gains. We propose mandatory disclosure of audit fees and an interpretation of international differences in shareholding patterns. We endogenize auditor-firm collusion and extortion by auditors. We embed our game-theoretic analysis in a general equilibrium model to generate unique equilibria that trace the impact of the distribution of wealth on the existence of the market and consequences for development.
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Bibliographic InfoPaper provided by East Asian Bureau of Economic Research in its series Microeconomics Working Papers with number 22426.
Date of creation: Jan 2005
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Corporate governance; moral hazard; vicious circles; inequality and development; general equilibrium; repeated games;
Other versions of this item:
- Brishti Guha, 2005. "Honesty and Intermediation: Corporate Cheating, Auditor Involvement and the Implications for Development," Working Papers, Singapore Management University, School of Economics 18-2005, Singapore Management University, School of Economics.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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