We present a model of investors acquiring forecasts from a group of advisers (analysts), some of which are better informed than others. Investors may pick an adviser based on his past performance. In the literature it is typically assumed that agentsã rewards depend solely on the type they are...

The present paper analyzes the effect of competition for scarce corporate financial resources on managers' incentives to generate profitable investment opportunities. Competition is only unambiguously beneficial if projects are symmetric. If they are asymmetric, competition for corporate...

This article analyzes the relationship between a firm's financing and its project incorporation decisions. It is shown that headquarters may have an incentive to carry out a new project within a subsidiary rather than within the existing firm. The project is partially financed through an...

I examine a principal-agent model with multiple projects where a risk-neutral manager is protected by limited liability. The analysis has several interesting implications: (i) incentive problems are shown to be a natural source of economies of scope, as combining multiple projects under the...

We analyze the board of directors' equilibrium strategies for setting CEO incentive pay and overseeing financial reporting and their effects on the level of earnings management. We show that an increase in CEO equity incentives does not necessarily increase earnings management because directors...

The recent financial crisis has led to a vigorous debate about the pros and cons of fair-value accounting (FVA). This debate presents a major challenge for FVA going forward and standard setters' push to extend FVA into other areas. In this article, we highlight four important issues as an...

Mutual insurance companies and stock insurance companies are different forms of organized risk sharing: policyholders and owners are two distinct groups in a stock insurer, while they are one and the same in a mutual. This distinction is relevant to raising capital and selling policies in the...

We identify a new benefit of index or parametric triggers. Asymmetric information between reinsurers on an insurer's risk affects competition in the reinsurance market: reinsurers are subject to adverse selection, since only high-risk insurers may find it optimal to change reinsurers. The result...

The recent financial crisis has led to a major debate about fair-value accounting. Many critics have argued that fair-value accounting, often also called mark-to-market accounting, has significantly contributed to the financial crisis or, at least, exacerbated its severity. In this paper, we...