A theory of income smoothing when insiders know more than outsiders
By: Viral V. Acharya, Bart M. Lambrecht
Contributors: Lambrecht, Bart; National Bureau of Economic Research
Series: NBER working paper series -- working paper 17696; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 17696.
Publisher: National Bureau of Economic Research
Published: 2011
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "We consider a setting in which insiders have information about income that outside shareholders do not, but property rights ensure that outside shareholders can enforce a fair payout.  To avoid intervention, insiders report income consistent with outsiders' expectations based on publicly available information rather than true income, resulting in an observed income and payout process that adjust partially and over time towards a target.  Insiders under-invest in production and effort so as not to unduly raise outsiders' expectations about future income, a problem that is more severe the smaller is the inside ownership and results in an "outside equity Laffer curve".  A disclosure environment with adequate quality of independent auditing mitigates the problem, implying that accounting quality can enhance investments, size of public stock markets and economic growth"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 2/21/2012.

Includes bibliographical references.

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