In the model there are two types of financial auditors with identical technology, one of which is endowed with a prior reputation for honesty. We characterize conditions under which there exists a “two-tier equilibrium” in which “reputable” auditors refuse bribes offered by clients for...

In recent years stock option plans (SOPs) have become an important component of managerial remuneration in most industrialized countries. Commonly accepted, corporate as well as individual taxes have a major impact on the costs of a SOP. In contrast, the tax influence on the benefits of a SOP...

This paper investigates a regulated company's capacity choices for a two-stage investment opportunity with growth options, if the company faces a cost-based regulation. It uses a theoretical approach: A discrete-time mathematical model which is solved analytically. For new technologies like...

Interfirm relationships can be successful but are also fraught with problems. We study how to encourage one party, herein the seller, to make a cooperative relation-specific investment that will increase the joint surplus. The seller, fearing he will be held up by the buyer, typically refrains...

Existing literature employs two approaches to assess the validity of alternative proxies for firm-specific cost of equity capital. One approach relies on the theoretical link between future realized returns and cost of equity capital, while the second approach relies on the theoretical link...

This article develops a theory of standard-setting in which accounting standards emerge endogenously from an institutional bargaining process. It provides a unified framework with investment and voluntary disclosure to examine the links between regulatory institutions and accounting choice....

Fair value estimates of debt and equity securities play an increasingly important role in the economy. For example, International Financial Reporting Standards require companies to report many of their investments at fair value on the balance sheet or to use fair values in goodwill impairment...

This paper studies whether dissemination of private, pre-decision signals about productivity is valuable to the principal when agents work sequentially and observe each other’s effort. The benefit of dissemination is that when productivity states are correlated, each agent’s signal is useful...