University of Cambridge > Talks.cam > Cambridge Finance Workshop Series > Misreporting and Feedback Effect

Misreporting and Feedback Effect

Add to your list(s) Download to your calendar using vCal

If you have a question about this talk, please contact CERF/CF Admin.

Stock price often provides firms with new information, which can be used in the firms’ subsequent real decisions. We examine how this informational feedback from the financial market affects a myopic firm manager’s incentive to misreport, and how the misreporting further affects the firm’s price and value. We find that the manager overstates his report more in the presence of feedback, but this misreporting brings forth both positive price and real effects for the firm. Intuitively, overstating the report encourages information production in the market because (a) it renders accounting reports less reliable as a source of information, and (b) investors expect higher trading profits from larger capital investment. The new incremental information improves investment efficiency when it is revealed to the firm manager through trading and used in the firm’s subsequent investment decisions. As a consequence, the capital investment is higher when there is feedback effect.

This talk is part of the Cambridge Finance Workshop Series series.

Tell a friend about this talk:

This talk is included in these lists:

Note that ex-directory lists are not shown.

 

© 2006-2017 Talks.cam, University of Cambridge. Contact Us | Help and Documentation | Privacy and Publicity