This paper analyzes the impact of signal-to-noise-ratios and the autocorrelation of a performance measure on the principal's welfare in dynamic agencies with renegotiation. We consider the impact of changes in the persistent, transitory, and reversible components of accounting earnings on its...

Revisits the finding of a ratchet effect causing losses through lack of commitment by managers through their contracts by Indjejikian and Narda (1999). Demonstrates that equilibrium can be achieved by assuming the principal can commit in advance to offer a fair second-period contract and the...

The present study began with Jerry Feltham’s invitation to present at the Stanford Summer Camp in August 2003. As we were variously involved in related work on performance measurement and dynamic incentives, Peter, Jerry, Christian, and Florin teamed up and the result was Christensen, Feltham,...

Economics of Accounting: Information in Markets examines the fundamentals of a variety of economic analyses of the decision-facilitating and decision-influencing roles of information that are pertinent to the study of the economic impact of accounting. While much of information economic analysis...

This paper examines communication in a two-period principal/agent model in which the agent receives a private signal about the second outcome before the first outcome is realized. No communication is compared with communication at three possible dates: before the first outcome (early), at the...

We review and critically examine the standard approach to equity valuation using a constant risk-adjusted cost of capital, and we develop a new valuation approach discounting risk-adjusted fundamentals, such as expected free cash flows and residual operating income, using nominal zero-coupon...