European Business Schools Librarian's Group

Les Cahiers de Recherche,
HEC Paris

No 986: Marking to Market and Inefficient Investment Decisions

Clemens A. Otto () and Paolo F. Volpin ()

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 ()
Report other problems with accessing this service to Sune Karlsson ().

This page generated on 2018-02-22 16:53:01.