Competing for Capital: Auditing and Credibility in Financial Reporting

Arbeitspapier

When self-interested agents compete for scarce resources, they often exaggerate the promise of their activities. As such, principals must consider both the quality of each opportunity and each agent’s credibility. We show that principals are better off with less transparency because they gain access to better investments. This is due to a complementarity between the agents' effort provision and their ability to exaggerate. As such, it is suboptimal for principals to prevent misreporting, even if doing so is costless. This helps explain why exaggeration is ubiquitous during allocation decisions: money management, analyst coverage, private equity fundraising, and venture capital investments.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Queen's Economics Department Working Paper ; No. 1377

Classification and Topics

• Classification: Wirtschaft ; Search; Learning; Information and Knowledge; Communication; Belief; Unawareness ; Information and Market Efficiency; Event Studies; Insider Trading ; Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
• Subject: Auditing ; Monitoring ; Financial Reporting ; Capital Budgeting ; Exaggeration ; Rechnungswesen ; Projektbewertung ; Investitionsrechnung ; Prinzipal-Agent-Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Boleslavsky, Raphael ; Carlin, Bruce Ian ; Cotton, Christopher
• Event: Veröffentlichung
• (who): Queen's University, Department of Economics
• (where): Kingston (Ontario)
• (when): 2017

Further information

• Handle: http://hdl.handle.net/10419/188889
• Last update: 10.03.2025, 11:44 AM CET