European Business Schools Librarian's Group

HEC Research Papers Series,
HEC Paris

No 986: Marking to Market and Inefficient Investment Decisions

Clemens A. Otto (otto@hec.fr) and Paolo F. Volpin (paolo.volpin.1@city.ac.uk)

Abstract: We examine how mark-to-market accounting affects investment decisions in an agency model with reputation concerns. Reporting the current market value of a firm's assets in the financial statements can serve as a disciplining device because the information contained in the market price provides a benchmark against which the agent's actions can be evaluated. However, the fact that market prices are informative can have a perverse effect on the investment decisions: The agent may prefer to ignore relevant but contradictory private information whose revelation would damage his reputation. Surprisingly, this effect makes mark-to-market accounting less desirable as market prices become more informative.

Keywords: Accounting rules; marking to market; historical cost accounting; investment decisions; reputation; agency problem

JEL-codes: D81; G31; M41

49 pages, June 29, 2013

Full text files

papers.cfm?abstract_id=2218349 PDF-file 

Download statistics

Questions (including download problems) about the papers in this series should be directed to Antoine Haldemann (haldemann@hec.fr)
Report other problems with accessing this service to Sune Karlsson (sune.karlsson@oru.se).

RePEc:ebg:heccah:0986This page generated on 2024-09-13 22:19:53.