The empirical literature often theorizes that managerial overconfidence exacerbates earnings management because overconfidence sends the manager ``down the slippery slope to misreporting". In a principal-agent model with moral hazard, I show that overconfidence only increases the manager's...

Firms commonly use disaggregated accounting information to facilitate efficient contracting over intangible assets. However, reliance on accounting measures creates information asymmetries and thus a role for contract audits. Using a hand-collected sample of technology licensing agreements with...

We study whether bank managers' use their discretion in estimating the allowance for loan losses (ALL) for efficiency or for opportunistic reasons. We do so by examining whether the use of this discretion relates to bank stability and bank risk taking, or whether it relates to earnings...

We examine the relation between passive ownership and financial reporting quality measured by Beneish's (1999) earnings' manipulation score (M-score). We find that passive ownership is negatively related to M-score and to the likelihood of being designated as a “manipulator” firm. However,...

This paper examines how accounting audits impact investment decisions in the presence of agency conflicts. Investors choose between a short-term risk-free asset and a long-term risky project. The manager in charge of the latter has incentives to inflate interim payoffs to be able to continue a...

This study examines whether boards of directors use external auditing to protect their reputation capital. We hypothesize and find that audit quality increases with the level of directors' reputation capital. More specifically, using ten-year panel data on Finnish listed companies, we find that...

We examine how executive equity risk-taking incentives affect firms' choice of debt structure. Using a longitudinal sample of U.S. firms, we document that when executive compensation is more sensitive to stock volatility (i.e., has higher vega), firms reduce their reliance on bank debt...

This paper studies the effect of losses due to audit error on audit quality when the auditor's report of earnings is used for managerial compensation and the auditor can learn about the firm's productivity environment by observing the manager's effort. If the auditor observes the manager's...

We consider a team production process where two agents exert non-observable effort in their specialized tasks and an additional task needs to be assigned. After contracting, one agent becomes privately informed about whether he has a comparative cost advantage in the additional task. We...

A common means of incorporating non-verifiable performance measures in compensation contracts is via bonus pools. We study a principal-multi-agent relational contracting model in which the optimal contract resembles a bonus pool. It specifies a minimum joint bonus floor the principal is required...