We study the effects of mark-to-market accounting (MTM) on banks' loan origination and retention decisions. We point out a conceptual shortcoming of MTM. Loan prices are informative in equilibrium but this price discovery is sustained by the good banks' costly retention. The attempt to exploit...

We study firms' investment in internal control to reduce accounting manipulation. We first show the peer pressure for manipulation: one manager manipulates more if he suspects reports of peer firms are more likely to be manipulated. As a result, one firm's investment in internal control has a...

This paper examines the market efficiency consequences of accounting disclosure in the context of stock markets as a Keynesian beauty contest, an influential metaphor originally proposed by Keynes (1936) and recently formalized by Allen, Morris, and Shin (2006). In such markets, public...

This paper develops a model of accounting measurement to study the design of the optimal measurement rule. The core of the model is a representation of accounting measurement process that features the manager's opportunistic influence and the use of verification as a response. To safeguard...

This paper investigates banks reporting choices in the context of bank runs. A fundamental-based run imposes market discipline on insolvent banks, but a panic-based run closes banks that could have survived with better coordination among creditors. We augment a bank-run model with the bank s...

It is widely believed that disclosure quality improves investors’ welfare by reducing cost of capital in a competitive market. This paper examines this conventional wisdom by studying a production economy in which disclosure influences a firm’s investment decisions. I demonstrate three...

This paper examines the market efficiency consequences of accounting disclosure in the context of stock markets as a Keynesian beauty contest, an influential metaphor originally proposed by Keynes (1936) and recently formalized by Allen, Morris, and Shin (2006). In such markets, public...

This paper examines the market efficiency consequences of accounting disclosure in the context of stock markets as a Keynesian beauty contest, an influential metaphor originally proposed by Keynes (1936) and recently formalized by Allen, Morris, and Shin (2006). In such markets, public...

It is widely believed that disclosure quality improves investors’ welfare by reducing cost of capital in a competitive market. This paper examines this conventional wisdom by studying a production economy in which disclosure influences a firm’s investment decisions. I demonstrate three...

One might expect that disclosure quality improves investor welfare by reducing cost of capital. This study shows that the argument is valid only in limited circumstances. Based on a production economy with perfect competition among investors, the analysis demonstrates three points. First, cost...