The Disciplining Role of Accounting in the Long-Run

The Disciplining Role of Accounting in the Long-Run One role of accounting is to discipline softer (more manipulable) sources of information. We use a principal-agent model of hidden actions and hidden information to study this role. In our model, there is both a verifiable signal (a publicly observed output) and an unverifiable signal (a productivity parameter privately observed by the agent). In a one-period setting, the optimal contract does not make use of the agent’s report on the private signal. However, when the output is tracked over two periods, the agent’s communication can be valuable. This reversal of results suggests uncovering the disciplining role of accounting may require a long-term perspective. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

The Disciplining Role of Accounting in the Long-Run

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2004 by Kluwer Academic Publishers
Subject
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1007/s11142-004-7790-x
Publisher site
See Article on Publisher Site

Abstract

One role of accounting is to discipline softer (more manipulable) sources of information. We use a principal-agent model of hidden actions and hidden information to study this role. In our model, there is both a verifiable signal (a publicly observed output) and an unverifiable signal (a productivity parameter privately observed by the agent). In a one-period setting, the optimal contract does not make use of the agent’s report on the private signal. However, when the output is tracked over two periods, the agent’s communication can be valuable. This reversal of results suggests uncovering the disciplining role of accounting may require a long-term perspective.

Journal

Review of Accounting StudiesSpringer Journals

Published: Sep 4, 2004

References

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