Abstract/Details

Malfeasance and the market: Essays in corporate cheating


2005 2005

Other formats: Order a copy

Abstract (summary)

This thesis deals with “order without law”—efficiency or honesty in economic transactions under incomplete contracting. The overall focus is on corporate governance, with implications for economic development and contract theory.

In our first chapter, we apply game theory to corporate scandals, in which firm insiders cheat their investors, sometimes with the aid of external auditors. We characterize equilibria for different ranges of “warning signal” accuracy and withdrawal costs, identifying conditions under which external intermediation could help. Firm-hired intermediaries like transparency, but only up to a certain extent, while firms dislike it., as do intermediaries hired by investor consortia. Intermediaries' incentives to collude decrease with long life—an indirect benefit of the relatively low level of competition in auditing markets. Frequent rotation of an intermediary's clients may have costs, not just benefits.

In our second chapter we allow for stochastic firm performance known only to insiders in a game of imperfect public information. We endogenize payoffs and the formation of firms. With a minimum size requirement on enterprise, moral hazard constrains the ability to raise outsider capital, yielding a floor on personal wealth required to enter entrepreneurship. Credible auditing could create efficiency gains, our work suggesting mandatory disclosure of audit fees. We discuss consequences for patterns of enterprise financing in different countries, moral-hazard induced “vicious circles”, and the effect of inequality on industrialization.

In our third chapter we extend the second chapter's results to look at the three-way relationship between board, management and investors. Transparency of managerial compensation contracts can “trap” even opportunistic firms in honesty. Renegotiation possibilities serve to pin down firm size and ensure survival of the industry. Firms with greater total wealth are better able to offer their managers “efficiency wages” of the Shapiro-Stiglitz variety.

In our final chapter, we derive the optimal relational contract for a case of bilateral moral hazard where an input supplier sells an input of non-verifiable quality to a final goods producer.

Indexing (details)


Subject
Finance;
Business costs;
Economic theory;
Game theory;
Scandals;
Corporate governance;
Essays
Classification
0508: Finance
0505: Business costs
0511: Economic theory
Identifier / keyword
Social sciences; Auditing; Corporate cheating; Family firms; Malfeasance; Managerial compensation; Market
Title
Malfeasance and the market: Essays in corporate cheating
Author
Guha, Brishti
Number of pages
176
Publication year
2005
Degree date
2005
School code
0181
Source
DAI-A 66/03, Dissertation Abstracts International
Place of publication
Ann Arbor
Country of publication
United States
ISBN
9780542059575, 0542059576
Advisor
Dixit, Avinash
University/institution
Princeton University
University location
United States -- New Jersey
Degree
Ph.D.
Source type
Dissertations & Theses
Language
English
Document type
Dissertation/Thesis
Dissertation/thesis number
3169801
ProQuest document ID
305386889
Copyright
Database copyright ProQuest LLC; ProQuest does not claim copyright in the individual underlying works.
Document URL
http://search.proquest.com/docview/305386889
Access the complete full text

You can get the full text of this document if it is part of your institution's ProQuest subscription.

Try one of the following:

  • Connect to ProQuest through your library network and search for the document from there.
  • Request the document from your library.
  • Go to the ProQuest login page and enter a ProQuest or My Research username / password.