Optimal Penalty and Accounting Policy

22 Pages Posted: 9 Dec 2014

See all articles by Masatomo Akita

Masatomo Akita

Osaka University

Yusuke Osaki

Waseda University - School of Commerce

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

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

Masatomo Akita

Osaka University ( email )

1-1 Yamadaoka
Suita
Osaka, 565-0871
Japan

Yusuke Osaki (Contact Author)

Waseda University - School of Commerce ( email )

1-6-1 Nishiwaseda
Shinjuku, Tokyo 1698050
Japan

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