Marking to Market versus Taking to Market
Guillaume Plantin, Jean Tirole
American Economic Review · 2018 · Volume 108 · Issue 8
Abstract
Building on the idea that accounting matters for corporate governance, this paper studies the equilibrium interaction between the measurement rules that firms find privately optimal, firms' governance, and the liquidity in the secondary market for their assets. This equilibrium approach reveals an excessive use of market-value accounting: corporate performance measures rely excessively on the information generated by other firms' asset sales and insufficiently on the realization of a firm's own capital gains. This dries up market liquidity and reduces the informativeness of price signals, thereby making it more costly for firms to overcome their agency problems.
Keywords
Firm Behavior: Theory, Asymmetric and Private Information, Mechanism Design, Mergers, Acquisitions, Restructuring, Voting, Proxy Contests, Corporate Governance, Corporate Finance and Governance: Government Policy and Regulation, Accounting, Accounting and Auditing: Government Policy and Regulation
Enable JavaScript for citation tools and additional paper interactions.