This paper demonstrates the existence of two different kinds of externalities induced by an auditor servicing multiple clients at the same time. First, we show that the capital market price for a client can increase in the number of qualified reports that his auditor issues to his other clients,...

This paper studies how an accountant's method of aggregating information in a financial report is affected by differences in the reliability and relevance of components of the report. We study a firm that hires an accountant to produce a report that reveals information to investors regarding the...

<heading id="h1" level="1" implicit="yes" format="display">ABSTRACT</heading>This paper studies the allocational effects associated with the precision of accounting estimates when the precision of estimates is a choice variable for firms. One part of the paper considers the effects of the observability of precision choices. We show that, generally, making...

type="main" <title type="main">ABSTRACT</title> <p>We study optimal compensation contracts that (1) are designed to address a joint moral hazard and adverse selection problem and that (2) are based on performance measures, which may be manipulated by the agent at a cost. In the model, a manager is privately informed about...</p>