Demand for the truth in principal-agent relationships

• 成果类型: Article
• 署名作者: Ronen, Joshua; Yaari, Varda (Lewinstein)
• 署名单位: New York University; Morgan State University
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-006-9021-0
• 发表日期: 2007
• 页码: 125-153
• 关键词: limited-liability; earnings management; moral hazard; CONTRACTS; INFORMATION; schemes

摘要

Consider the following puzzle: If earnings management is harmful to shareholders, why don't they design contracts that induce managers to reveal the truth? To answer this question, we model the shareholders-manager relationship as a principal-agent game in which the agent (the manager) alone observes the economic outcome. We show that the limited liability (LL) of the agent, defined as the agent's feasible minimum payment, might explain the demand for earnings management by the principal. Specifically, when the LL level is high (low), a contract that induces earnings management may be less (more) costly than a truth-revealing contract. This finding offers a new explanation of the demand for earnings management.