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Externe Unternehmensrechnung MIII
(WIWI-M-15002-AC)

Leistungspunkte: 5 ECTS

Course Overview

The well known paper on the market for „lemons“ by \ Akerlof (1970) implies that in an asymmetric information environment in which an informed sender cannot credibly communicate any of its information to an uninformed receiver, an adverse selection problem results in which the market collapses. Hence, for capital markets to exist, informed market participants or firms must be able to, at least partially, communicate their information to uninformed investors.

This course is designed for PhD and advanced Master students in accounting and related areas who would like to extend and deepen their knowledge on the strategic mandatory and voluntary disclosure literature. The focus is on the decision-facilitating role of accounting information, with emphasis on the impact of private information on the equilibria and investor welfare in capital and product markets. We will study classic papers, which provide an analytical foundation upon which a large part of subsequent work in accounting has been conducted.

In the first part we discuss two famous market microstructure models, in which trades may contain private information in order to alleviate the adverse selection problem.

In the second part we assume the firm's manager has private information relative to the market participants. We consider a number of models that examine the manager's incentives to reveal their information to others, particulary to investors in the capital market or competitors in the firm's product market. Within this area of literature, we discuss three types of models. In persuasion games, the firm's report is restricted to be truthful through verified reports (e.g. audited accounting statements) although the firm may withhold information. In costless signaling games, the firm is free to issue vague or even misleading information through unverified reports (e.g. earnings forecasts). In costly signaling games, the firm can misreport the information but only at some cost (e.g. earnings management).

Course Outline

1.       Introduction: The Market for „Lemons“

2.       Market Microstructure Games

a.       The Kyle model

b.      The Glosten-Milgrom model

3.       Persuasion Games

a.       Costless information acquisition and full revelation in Capital markets

b.      Costly information acquisition and incomplete revelation in Capital markets

c.       Disclosure costs and incomplete revelation in Capital markets

d.      Disclosure of private information in Product markets

4.       Costless Signaling Games (the Crawford-Sobel model)

5.       Costly Signaling Games

a.       Accounting Earnings Management

b.      Real Earnings Management

Komponenten und Semesterwochenstunden

Vorlesung mit integrierter Übung; 1-3 SWS.

Angebotsturnus

Wintersemester

Readings

Akerlof, George A. (1970) “The Market for ‘Lemons’: Quality Uncertainty and the Market Mechanism”, The Quarterly Journal of Economics, 84 (3), 488–500.

Beyer, Anne; Cohen, Daniel A.; Lys, Thomas Z. and Walther, Beverly R. (2010) “The financial reporting environment: Review of the recent literature”, Journal of Accounting and Economics, 50, 296–343.

Christensen, Peter O. and Feltham, Gerald A. (2003) Economics of Accounting Volume I: Information in Markets, Kluwer, Dordrecht.

Crawford, Vincent P. and Sobel, Joel (1982) “Strategic Information Transmission”, Econometrica, 50 (6), 1431–1451.

Darrough, Masako N. (1993) “Disclosure Policy and Competition: Cournot vs. Bertrand”, The Accounting Review, 68 (3), 534–561.

Dye, Ronald A. (1985) “Disclosure of Nonproprietary Information”, Journal of Accounting Research, 23, 123–145.

Ewert, Ralf and Wagenhofer, Alfred (2005) “Economic Effects of Tightening Accounting Standards to Restrict Earnings Management”, The Accounting Review, 80 (4), 1101–1124.

— (2011) “Earnings Management, Conservatism, and Earnings Quality”, Foundations and Trends in Accounting, 6 (2), 65–186.

Fischer, Paul E. and Verrecchia, Robert E. (2000) “Reporting Bias”, The Accounting Review, 75 (2), 229–245.

Foucault, Thierry; Pagano, Marco and Röell, Ailsa (2013) Market Liquidity – Theory, Evidence, and Policy, Oxford University Press, Oxford.

Glosten, Lawrence R. and Milgrom, Paul R. (1985) “Bid, Ask and Transaction Prices in a Specialist Market with heterogeneously informed Traders”, Journal of Financial Economics, 14, 71–100.

Grossman, Sandord J. (1981) “The informational role of warranties and private disclosure about product quality”, Journal of Law and Economics, 24, 461–483.

de Jong, Frank and Rindi, Barbara (2009) The Microstructure of Financial Markets, Cambridge University Press, Cambridge.

Jung, Woon-Oh and Kwon, Young K. (1988) “Disclosure When the Market Is Unsure of Information Endowment of Managers”, Journal of Accouting Research, 26, 146–153.

Kyle, Albert S. (1985) “Continuous Auctions and Insider Trading”, Econometrica, 53 (6), 1315–1335.

Milgrom, Paul R. (1981) “Good news and bad news: representation theorems and applications”, Bell Journal of Economics, 12, 380–391.

Pae, Suil (1999) “Acquisition and discretionary disclosure of private information and ist implications for firms’ productive activities”, Journal of Accounting Research, 37, 465–474.