Socially Efficient Managerial Dishonesty
AbstractAs a reaction to the corporate scandals of the early 2000s, the US Administration dramatically tightened sanctions against managers who disclose misleading financial information. This paper argues that such a reform might come with some unpleasant macroeconomic effects. The model is cast as a game between the manager of a publicly listed company and the supplier of an essential input, under asymmetric information about the type of the firm. The analysis focuses on the Hybrid Bayesian Equilibrium where at least some managers choose to communicate a false information about the true type of the firm. We show that by dissuading "virtuous lies", whereby a manager strives to win time for a financially distressed company, a tougher sanction brings about a higher frequency of default.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by ESSEC Research Center, ESSEC Business School in its series ESSEC Working Papers with number DR 05005.
Length: 24 pages
Date of creation: May 2005
Date of revision:
Financial distress; Disclosure; Honesty; Corporate regulation; Hybrid Bayesian Equilibrium;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
- G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-05-14 (All new papers)
- NEP-BEC-2005-05-14 (Business Economics)
- NEP-FIN-2005-05-14 (Finance)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Altman, Edward I, 1984. " A Further Empirical Investigation of the Bankruptcy Cost Question," Journal of Finance, American Finance Association, vol. 39(4), pages 1067-89, September.
- Paul M. Healy & Krishna G. Palepu, 2003. "The Fall of Enron," Journal of Economic Perspectives, American Economic Association, vol. 17(2), pages 3-26, Spring.
- Baruch Lev, 2003. "Corporate Earnings: Facts and Fiction," Journal of Economic Perspectives, American Economic Association, vol. 17(2), pages 27-50, Spring.
- Murphy, Kevin J., 1999. "Executive compensation," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 38, pages 2485-2563 Elsevier.
- Philippe FroutÃ©, 2007. "Theoretical foundation for a debtor friendly bankruptcy law in favour of creditors," European Journal of Law and Economics, Springer, vol. 24(3), pages 201-214, December.
- Besancenot, Damien & Vranceanu, Radu, 2008.
"Financial distress and banks' communication policy in crisis times,"
ESSEC Working Papers
DR 08018, ESSEC Research Center, ESSEC Business School.
- Besancenot, Damien & Vrânceanu, Radu, 2010. "Financial Distress And Banks'communication Policy In Crisis Times," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 5-20, March.
- Naiditch, Claire & Vranceanu, Radu, 2009.
"Migrant wages, remittances and recipient labour supply in a moral hazard model,"
Elsevier, vol. 33(1), pages 60-82, March.
- Claire Naiditch & Radu Vranceanu, 2009. "Migrant wages, remittances and recipient labour supply in a moral hazard model," UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers) halshs-00318870, HAL.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sophie Magnanou).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.