We study the interaction between strategic managerial information acquisition and shareholders' optimal degree of conservative accounting. Conservative accounting results in more frequent early warnings that allow lenders or corporate boards to take corrective actions, but also increases the...

We analyze the role of using CEO compensation and capital requirements in bank regulation. With a passive uninformed board that delegates the choice of bank strategy to the CEO, requiring a compensation contract where the CEO receives a fixed fraction of total bank payoff eliminates the risk...