Asymmetric Monitoring: Good Versus Bad News Verification

John Christensen and Joel S. Demski

Schmalenbach Business Review (sbr), 2004, vol. 56, issue 3, 206-222

Abstract: We analyze a principal-agent setting with multiple sources of contracting information in which the signal from each source can be unmistakably interpreted as “good” or “bad” news. We then ask whether it is best to condition the acquisition of one of the information sources on whether the earlier reporting source has reported “good” or “bad” news. That is, is it efficient to “chase the good news” or to “chase the bad news”? The answer depends on whether the earlier source is publicly observed or self-reported by the agent. We also explore ties to institutional features, and in particular conservative accounting treatments.

Keywords: Agency; Asymmetric Monitoring; Conservative Accounting (search for similar items in EconPapers)
JEL-codes: D82 M4 M55 (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:sbr:abstra:v:56:y:2004:i:3:p:206-222

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