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Strategic Withholding and Imprecision in Asset Measurement

Author

Listed:
  • Jeremy Bertomeu
  • Edwige Cheynel
  • Davide Cianciaruso

    (HEC Paris - Ecole des Hautes Etudes Commerciales)

Abstract

How precise should accounting measurements be, if management has discretion to strategically withhold? We examine this question by nesting an optimal persuasion mechanism, which controls what measurements are conducted, within a voluntary disclosure framework a la Dye (85) and Jung and Kwon (1988). In our setting, information has real effects because the firm uses it to make a continuous operating decision, increasing in the market's belief. Absent frictions other than uncertainty about information endowment, we show that imprecision can reduce strategic withholding but always decreases firm value. We then examine plausible environments under which, by contrast, there is an optimal level of imprecision featuring coarseness at the marginal discloser. We offer additional implications in the contexts of enforcement against strategic withholding and financing with collateralized assets.

Suggested Citation

  • Jeremy Bertomeu & Edwige Cheynel & Davide Cianciaruso, 2018. "Strategic Withholding and Imprecision in Asset Measurement," Working Papers hal-02896007, HAL.
    • Handle: RePEc:hal:wpaper:hal-02896007
    DOI: 10.2139/ssrn.3293414
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    Cited by:

    1. is not listed on IDEAS
    2. Anil Arya & Ram N. V. Ramanan, 2023. "Endogenizing Discretion in Disclosures," Management Science, INFORMS, vol. 69(6), pages 3730-3747, June.
    3. Mark Whitmeyer & Kun Zhang, 2022. "Costly Evidence and Discretionary Disclosure," Papers 2208.04922, arXiv.org.
    4. Dordzhieva, Aysa & Laux, Volker & Zheng, Ronghuo, 2022. "Signaling private information via accounting system design," Journal of Accounting and Economics, Elsevier, vol. 74(1).
    5. Lichtig, Avi & Weksler, Ran, 2023. "Information transmission in voluntary disclosure games," Journal of Economic Theory, Elsevier, vol. 210(C).
    6. Daniel Quigley & Ansgar Walther, 2024. "Inside and Outside Information," Journal of Finance, American Finance Association, vol. 79(4), pages 2667-2714, August.
    7. Felix Zhiyu Feng & Wenyu Wang & Yufeng Wu & Gaoqing Zhang, 2023. "Ignorance Is Bliss: The Screening Effect of (Noisy) Information," Papers 2302.11128, arXiv.org, revised Aug 2024.
    8. Aghamolla, Cyrus & Smith, Kevin, 2023. "Strategic complexity in disclosure," Journal of Accounting and Economics, Elsevier, vol. 76(2).
    9. Laux, Christian & Laux, Volker, 2024. "Accounting conservatism and managerial information acquisition," Journal of Accounting and Economics, Elsevier, vol. 77(2).

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    Keywords

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    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

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