Socially Efficient Managerial Dishonesty
As 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.
|Date of creation:||May 2005|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.essec.edu/
More information through EDIRC
References listed on IDEAS
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.:
- 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.
- 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.
- Baruch Lev, 2003. "Corporate Earnings: Facts and Fiction," Journal of Economic Perspectives, American Economic Association, vol. 17(2), pages 27-50, Spring.
- 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.
When requesting a correction, please mention this item's handle: RePEc:ebg:essewp:dr-05005. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sophie Magnanou)
If references are entirely missing, you can add them using this form.