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Properties of optimal accounting rules in a signaling game

Publication ,  Journal Article
Jiang, X; Yang, M
Published in: Journal of Accounting and Economics
April 1, 2017

We characterize the properties of optimal accounting rules in a signaling game. An impatient firm sells shares to competitive investors. The firm can signal its private information about the fundamental by retaining a fraction of the shares. In addition, the firm can commit to disclosing information according to a set of accounting rules chosen ex ante. Information disclosure reduces signaling cost so that perfect disclosure is optimal. When perfect disclosure is impossible, the optimal accounting rule features a lower bound and a summary statistic of the fundamental. The interpretation of the lower bound is consistent with accounting conservatism, and the statistic summarizes the information most relevant to the firm׳s valuation. The justification for accounting conservatism relies on the existence of information asymmetry and the infeasibility of perfect accounting disclosure. This is consistent with the conjecture of LaFond and Watts (2008) that information asymmetry calls for accounting conservatism.

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Published In

Journal of Accounting and Economics

DOI

ISSN

0165-4101

Publication Date

April 1, 2017

Volume

63

Issue

2-3

Start / End Page

499 / 512

Related Subject Headings

  • Accounting
  • 3801 Applied economics
  • 3502 Banking, finance and investment
  • 3501 Accounting, auditing and accountability
  • 1502 Banking, Finance and Investment
  • 1501 Accounting, Auditing and Accountability
  • 1402 Applied Economics
 

Citation

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Jiang, X., & Yang, M. (2017). Properties of optimal accounting rules in a signaling game. Journal of Accounting and Economics, 63(2–3), 499–512. https://doi.org/10.1016/j.jacceco.2016.07.004
Jiang, X., and M. Yang. “Properties of optimal accounting rules in a signaling game.” Journal of Accounting and Economics 63, no. 2–3 (April 1, 2017): 499–512. https://doi.org/10.1016/j.jacceco.2016.07.004.
Jiang X, Yang M. Properties of optimal accounting rules in a signaling game. Journal of Accounting and Economics. 2017 Apr 1;63(2–3):499–512.
Jiang, X., and M. Yang. “Properties of optimal accounting rules in a signaling game.” Journal of Accounting and Economics, vol. 63, no. 2–3, Apr. 2017, pp. 499–512. Scopus, doi:10.1016/j.jacceco.2016.07.004.
Jiang X, Yang M. Properties of optimal accounting rules in a signaling game. Journal of Accounting and Economics. 2017 Apr 1;63(2–3):499–512.
Journal cover image

Published In

Journal of Accounting and Economics

DOI

ISSN

0165-4101

Publication Date

April 1, 2017

Volume

63

Issue

2-3

Start / End Page

499 / 512

Related Subject Headings

  • Accounting
  • 3801 Applied economics
  • 3502 Banking, finance and investment
  • 3501 Accounting, auditing and accountability
  • 1502 Banking, Finance and Investment
  • 1501 Accounting, Auditing and Accountability
  • 1402 Applied Economics