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 Singapore Management University, School of Economics in its series Working Papers with number 18-2005.
Length: 40 pages
Date of creation: Sep 2005
Date of revision:
Publication status: Published in SMU Economics and Statistics Working Paper Series
Other versions of this item:
- Brishti Guha, 2005. "Honesty and Intermediation : Corporate Cheating, Auditor Involvement and the Implications for Development," Microeconomics Working Papers 22426, East Asian Bureau of Economic Research.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G3 - Financial Economics - - Corporate Finance and Governance
- O1 - Economic Development, Technological Change, and Growth - - Economic Development
This paper has been announced in the following NEP Reports:
- NEP-ACC-2006-09-30 (Accounting & Auditing)
- NEP-ALL-2006-09-30 (All new papers)
- NEP-FIN-2006-09-30 (Finance)
- NEP-FMK-2006-09-30 (Financial Markets)
- NEP-SEA-2006-09-30 (South East Asia)
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