Capital structure and earnings manipulation

Miglo, A ORCID: https://orcid.org/0000-0002-9237-5293 2010, 'Capital structure and earnings manipulation' , Journal of Economics and Business, 62 (5) , pp. 367-382.

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Abstract

We consider an optimal contract between an entrepreneur and an investor, where the entrepreneur is subject to a double-moral hazard problem (one being the choice of production effort and the other being earnings manipulation). Since the entrepreneur cannot entirely capture the results of his effort, investment is below the optimal level and production effort is socially inefficient. The opportunity to manipulate earnings protects the entrepreneur against the risk of a low payoff when production is unsuccessful. Ex ante, this provides an incentive for the entrepreneur to increase investment and improve effort.

Item Type: Article
Schools: Schools > Salford Business School
Journal or Publication Title: Journal of Economics and Business
Publisher: Elsevier
ISSN: 0148-6195
Related URLs:
Depositing User: Dr Anton Miglo
Date Deposited: 25 May 2021 13:53
Last Modified: 27 Aug 2021 21:53
URI: http://usir.salford.ac.uk/id/eprint/60385

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