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When the Revelation Principle (RP) holds, managing earnings confers no advantage over revelation. We construct an explanation for earnings management that is based on limitations on owners’ ability to make commitments (a violation of the RP’s assumptions). Traditionally, earnings management is seen as sneaky managers pulling the wool over the eyes of(More)
This paper tests whether managers repurchase stock when their assessment of the firm's economic value exceeds the market value. Using the forecasts managers would have if they had perfect foresight, we estimate economic value using an earnings-based valuation model. The major findings are: (1) 74 percent of the firms that repurchase shares via fixed-price(More)
Doug Schroeder for helpful comments and discussions. We also thank Patricia Dechow (special edition editor) and two anonymous referees for helpful comments. SYNOPSIS: The push for increased transparency in financial reporting and corporate governance serves shareholders only up to a limit. The problem of assessing the value of transparency to shareholders(More)
Firms routinely decide whether to make essential inputs themselves or buy the inputs from independent suppliers. Conventional wisdom suggests that a firm will not buy an input for a price above its in-house cost of production. We show that this is not necessarily the case when a monopolistic input supplier also serves the firm's retail rival. In this case,(More)
This paper studies implementation in a principal-agent model of adverse selection. We explore ways in which the additional structure of principal-agent models (compared to general implementation models) simplifies the implementation problem. We develop a connection between the single crossing property and monotonicity conditions which are necessary for Nash(More)
The Controllability Principle in Responsibility Accounting: Another Look In this paper, we illustrate some subtleties in responsibility accounting by studying settings in which there is an interplay between different control problems. In a setting in which agents are involved in both team and individual production, we provide conditions under which the(More)
We use an experiment to investigate the efficacy of a non-binding budgetary announcement made by an owner in order to mitigate a management control problem induced by asymmetric information. The owner's announcement indicates how much funding she will provide for each possible cost report by the manager regarding an investment opportunity. The manager has(More)
A criticism of mechanism design theory is that the optimal mechanism designed for one environment can produce drastically different actions, outcomes, and payoffs in a second, even slightly different, environment. In this sense, the theoretically optimal mechanisms usually studied are not "robust." In order to study robust mechanisms while maintaining an(More)