Optimal Penalty and Accounting Policy
22 Pages Posted: 9 Dec 2014
Date Written: December 9, 2014
Abstract
This paper treats risky investment projects under adverse selection and considers optimal penalties for erroneous auditing reports that maximize social welfare. These penalties give firms an incentive to choose accounting policies that maximize social welfare. We characterize the optimal penalties so that efficient firms choose aggressive accounting policies and inefficient firms choose conservative accounting policies.
Keywords: Accounting policy, Audit, Investment Efficiency, Optimal Penalty
JEL Classification: D8, M4
Suggested Citation: Suggested Citation
Akita, Masatomo and Osaki, Yusuke, Optimal Penalty and Accounting Policy (December 9, 2014). Available at SSRN: https://ssrn.com/abstract=2535694 or http://dx.doi.org/10.2139/ssrn.2535694
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