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Strategic Withholding and Imprecision in Asset Measurement

Author

Listed:
  • Bertomeu, Jeremy

    (Washington University in St. Louis - John M. Olin Business School)

  • Cheynel, Edwige

    (Washington University in St. Louis - John M. Olin Business School)

  • Cianciaruso, Davide

    (HEC Paris)

Abstract

How precise should accounting measurements be, if management has discretion to strategically withhold? We examine this question by nesting an optimal persuasion mechanism, which controls what measurements are conducted, within a voluntary disclosure framework a la Dye (85) and Jung and Kwon (1988). In our setting, information has real effects because the firm uses it to make a continuous operating decision, increasing in the market's belief. Absent frictions other than uncertainty about information endowment, we show that imprecision can reduce strategic withholding but always decreases firm value. We then examine plausible environments under which, by contrast, there is an optimal level of imprecision featuring coarseness at the marginal discloser. We offer additional implications in the contexts of enforcement against strategic withholding and financing with collateralized assets.

Suggested Citation

  • Bertomeu, Jeremy & Cheynel, Edwige & Cianciaruso, Davide, 2018. "Strategic Withholding and Imprecision in Asset Measurement," HEC Research Papers Series 1324, HEC Paris.
    • Handle: RePEc:ebg:heccah:1324
    DOI: 10.2139/ssrn.3293414
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    More about this item

    Keywords

    real effects; imprecision; voluntary disclosure; accounting standards;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

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