publication . Preprint . Article . 2008

Can Earnings Manipulation Create Value

Anton Miglo;
Open Access
  • Published: 01 Jan 2008
Existing literature usually considers earnings manipulation to be a negative social phenomenon. We argue that earnings manipulation can be a part of the equilibrium relationships between firm's insiders and outsiders. We consider an optimal contract between an entrepreneur and an investor where the entrepreneur is subject to a double moral hazard problem (one being the choice of production effort and the other being intertemporal substitution, which consists of transferring cash flows between periods). Investment and production effort may be below socially optimal levels because the entrepreneur cannot entirely capture the results of his effort. The opportunity ...
free text keywords: Earnings manipulation, intertemporal substitution, design of securities, property rights, moral hazard., jel:G32, jel:D92, jel:D82, Moral hazard, Stochastic game, Social phenomenon, Microeconomics, Cash flow, Level of Effort, Property rights, Economics, Earnings, Incentive
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  • Funder: Social Sciences and Humanities Research Council (SSHRC)
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