IDEAS home Printed from https://ideas.repec.org/a/taf/acctbr/v29y1999i2p109-121.html
   My bibliography  Save this article

Discretionary write-downs, write-offs, and other restructuring provisions: a signaling approach

Author

Listed:
  • Pascal Frantz

Abstract

This paper introduces a model seeking to explain the discretionary write-downs, write-offs, and other restructuring provisions reported by managers. The model comprises a firm, a manager, and a financial market. The firm is about to be restructured. The manager has some private information about the likelihood of success of his restructuring action. The manager may recognise all or part of the expenditure associated with his future restructuring action by reporting a discretionary restructuring provision. The manager chooses whether or not to report a provision, recognising the impact of the provision on his compensation. The paper shows how, under certain conditions, the manager may credibly communicate his private information to investors through his provision policy. Testable implications are consistent with the empirical evidence reported by Strong and Meyer (1987), Elliott and Shaw (1988), and Zucca and Campbell (1992).

Suggested Citation

  • Pascal Frantz, 1999. "Discretionary write-downs, write-offs, and other restructuring provisions: a signaling approach," Accounting and Business Research, Taylor & Francis Journals, vol. 29(2), pages 109-121.
  • Handle: RePEc:taf:acctbr:v:29:y:1999:i:2:p:109-121
    DOI: 10.1080/00014788.1999.9729573
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/00014788.1999.9729573
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: https://libkey.io/10.1080/00014788.1999.9729573?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. In-Koo Cho & David M. Kreps, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(2), pages 179-221.
    2. Cho, In-Koo & Sobel, Joel, 1990. "Strategic stability and uniqueness in signaling games," Journal of Economic Theory, Elsevier, vol. 50(2), pages 381-413, April.
    3. Kim, Oliver & Suh, Yoon, 1993. "Incentive efficiency of compensation based on accounting and market performance," Journal of Accounting and Economics, Elsevier, vol. 16(1-3), pages 25-53, April.
    4. Kohlberg, Elon & Mertens, Jean-Francois, 1986. "On the Strategic Stability of Equilibria," Econometrica, Econometric Society, vol. 54(5), pages 1003-1037, September.
    5. Dye, Ra, 1988. "Earnings Management In An Overlapping Generations Model," Journal of Accounting Research, Wiley Blackwell, vol. 26(2), pages 195-235.
    6. Bushman, Robert M. & Indjejikian, Raffi J., 1993. "Accounting income, stock price, and managerial compensation," Journal of Accounting and Economics, Elsevier, vol. 16(1-3), pages 3-23, April.
    7. Verrecchia, Robert E., 1986. "Managerial discretion in the choice among financial reporting alternatives," Journal of Accounting and Economics, Elsevier, vol. 8(3), pages 175-195, October.
    8. Leland, Hayne E & Pyle, David H, 1977. "Informational Asymmetries, Financial Structure, and Financial Intermediation," Journal of Finance, American Finance Association, vol. 32(2), pages 371-387, May.
    9. Banks, Jeffrey S & Sobel, Joel, 1987. "Equilibrium Selection in Signaling Games," Econometrica, Econometric Society, vol. 55(3), pages 647-661, May.
    10. Strong, John S & Meyer, John R, 1987. "Asset Writedowns: Managerial Incentives and Security Returns," Journal of Finance, American Finance Association, vol. 42(3), pages 643-661, July.
    11. Healy, Paul M., 1985. "The effect of bonus schemes on accounting decisions," Journal of Accounting and Economics, Elsevier, vol. 7(1-3), pages 85-107, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Daley, Brendan & Green, Brett, 2014. "Market signaling with grades," Journal of Economic Theory, Elsevier, vol. 151(C), pages 114-145.
    2. Pascal Frantz, 1997. "Discretionary Accounting Choices: A Debt covenants Based Signalling Approach," Accounting and Business Research, Taylor & Francis Journals, vol. 27(2), pages 99-110.
    3. Eduardo Perez-Richet, 2014. "Interim Bayesian Persuasion: First Steps," American Economic Review, American Economic Association, vol. 104(5), pages 469-474, May.
    4. Dominiak, Adam & Lee, Dongwoo, 2023. "Testing rational hypotheses in signaling games," European Economic Review, Elsevier, vol. 160(C).
    5. Iñaki Aguirre, 1999. "Information transmission and incentives not to price discriminate," Spanish Economic Review, Springer;Spanish Economic Association, vol. 1(3), pages 283-299.
    6. Mehmet Ekmekci & Nenad Kos, 2020. "Signaling Covertly Acquired Information," Working Papers 658, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    7. Dobrin R. Kolev & Thomas J. Prusa, 2021. "Dumping and double crossing: The (in)effectiveness of cost-based trade policy under incomplete information," World Scientific Book Chapters, in: Thomas J Prusa (ed.), Economic Effects of Antidumping, chapter 7, pages 129-152, World Scientific Publishing Co. Pte. Ltd..
    8. Govindan, Srihari & Wilson, Robert B., 2008. "Axiomatic Theory of Equilibrium Selection in Signaling Games with Generic Payoffs," Research Papers 2000, Stanford University, Graduate School of Business.
    9. Adriani, Fabrizio & Deidda, Luca G., 2011. "Competition and the signaling role of prices," International Journal of Industrial Organization, Elsevier, vol. 29(4), pages 412-425, July.
    10. Baiman, Stanley & Verrecchia, Robert E., 1995. "Earnings and price-based compensation contracts in the presence of discretionary trading and incomplete contracting," Journal of Accounting and Economics, Elsevier, vol. 20(1), pages 93-121, July.
    11. Alós-Ferrer, Carlos & Prat, Julien, 2012. "Job market signaling and employer learning," Journal of Economic Theory, Elsevier, vol. 147(5), pages 1787-1817.
    12. Hedlund, Jonas, 2017. "Bayesian persuasion by a privately informed sender," Journal of Economic Theory, Elsevier, vol. 167(C), pages 229-268.
    13. Peter Eso & James Schummer, 2005. "Robust Deviations from Signaling Equilibria," Discussion Papers 1406, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    14. Lambert, Richard A., 2001. "Contracting theory and accounting," Journal of Accounting and Economics, Elsevier, vol. 32(1-3), pages 3-87, December.
    15. Jacobsen, Hans Jorgen & Jensen, Mogens & Sloth, Birgitte, 2001. "Evolutionary Learning in Signalling Games," Games and Economic Behavior, Elsevier, vol. 34(1), pages 34-63, January.
    16. Johanna Hertel & John Smith, 2013. "Not so cheap talk: costly and discrete communication," Theory and Decision, Springer, vol. 75(2), pages 267-291, August.
    17. Péter Eső & James Schummer, 2009. "Credible deviations from signaling equilibria," International Journal of Game Theory, Springer;Game Theory Society, vol. 38(3), pages 411-430, November.
    18. Vida, Péter & Honryo, Takakazu, 2021. "Strategic stability of equilibria in multi-sender signaling games," Games and Economic Behavior, Elsevier, vol. 127(C), pages 102-112.
    19. João Correia-da-Silva & Joana Resende, 2013. "Free daily newspapers: too strong incentives to print?," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 12(2), pages 113-130, August.
    20. Navin Kartik, 2009. "Strategic Communication with Lying Costs," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 76(4), pages 1359-1395.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:acctbr:v:29:y:1999:i:2:p:109-121. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RABR20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.