This paper characterizes the contractual relationship between an external auditor and a manager of a client firm when the incentives for both agents are implicit as in the career concerns framework. The main result is that the earning management and the audit effort are decreasing over time...

An important puzzle in financial economics is why fund managers invest in short-maturity assets when they could obtain larger profits in assets with longer maturity. This work provides an explanation to this fact based on labor contracts signed between institutional investors and fund managers....