Capital structure and earnings manipulation

Miglo, Anton (2010) Capital structure and earnings manipulation. Journal of Economics and Business, 62 (5). pp. 367-382. ISSN 0148-6195

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We consider an optimal contract between an entrepreneur and an investor, where the entrepreneur is subject to a double moral hazard problem (one being the choice of production effort and the other being earnings manipulation). Since the entrepreneur cannot entirely capture the results of his effort, investment is below the optimal level and production effort is socially inefficient. The opportunity to manipulate earnings protects the entrepreneur against the risk of a low payoff when production is unsuccessful. Ex-ante, this provides an incentive for the entrepreneur to increase investment and improve effort.

Item Type: Article
Date: 2010
Subjects: L100 Economics
N100 Business studies
N200 Management studies
N300 Finance
N400 Accounting
Divisions: Faculty of Business, Law and Social Sciences > Birmingham City Business School > Department of Accounting, Finance and Economics
Depositing User: Anton Miglo
Date Deposited: 15 Aug 2018 09:03
Last Modified: 15 Aug 2018 09:03

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