Microstructure of firms' disclosure

Joseph Tzur, Varda Yaari

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

Because of imperfections in auditing technology, firms can successfully misrepresent financial reports. We offer a new mechanism, a "sunshine rule," by which firms are required to publicize a management draft prior to the audited reports. If the final reports are materially different from the management's draft, the market penalizes both the firm and the manager. The proposal's effectiveness in eliminating "earnings management," increasing the quality of the financial reports, and reducing the cost of the manager's incentives is illustrated in signaling games with perfect and imperfect information and a principal-agent model with perfect information.

Original languageEnglish
Pages (from-to)367-391
Number of pages25
JournalReview of Quantitative Finance and Accounting
Volume13
Issue number4
DOIs
StatePublished - 1 Jan 1999
Externally publishedYes

Keywords

  • Disclosure
  • Mechanism design
  • Principal-agent
  • Signaling

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