Signaling and Accounting Information

Stewart C. Myers

No 3193, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper develops a signaling model in which accounting information improves real investment decisions. Pure cash flow reporting is shown to lead to underinvestment when managers have superior information but are acting in shareholders' interests. Accounting by prespecified, "objective" rules alleviates the underinvestment problem.

Date: 1989-12
Note: ME
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