We propose and validate a new measure of earnings quality based on a hidden Markov model. This measure, termed earnings fidelity, captures how faithful earnings signals are in revealing the true economic state of the firm. We estimate the measure using a Markov chain Monte Carlo procedure in a...

We consider partnerships among risk-averse professionals endowed with (i) a risky and personally-costly production technology and (ii) a personally-costly monitoring technology providing contractible noisy signals about partners' productive efforts. Partners shirk both production and monitoring...