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 identifies conditions under which a short selling ban improves the ex-ante firm value. Short selling improves price discovery and enables stakeholders to make better investment decisions. However, manipulative short selling can arise as a self-fulfilling equilibrium, resulting in...

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...

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 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...

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...

This paper investigates the design of recognition thresholds in accounting standards. In statistics, a threshold classi.es evidence to balance two types of recognition errors weighted by their respective costs to a decision maker. In accounting recognition standards, a threshold induces firms to...

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...

We study the voluntary disclosure decision of activist speculators. They receive multi-dimensional information and endogenously choose trading positions. We embed these two features into a variant of the model in Dye (1985). We show that the speculator's disclosure is not monotonic in the...

Trading in a secondary stock market not only redistributes wealth among investors but also generates information that guides subsequent investment. We provide a positive theory of disclosure that reflects both functions of a secondary market. By making private information public, disclosure...