Provides a framework for understanding the role of accounting and various intermediaries as mechanisms to reduce both adverse selection and moral hazard problems in the capital markets. Financial reports reduce adverse selection by providing basic information for investors and their agents before they make initial capital resource allocation decisions. Subsequently, after capital to start-ups in particular is associated to reduce financial reporting moral hazard between managers and inve … Read more »

Provides a framework for understanding the role of accounting and various intermediaries as mechanisms to reduce both adverse selection and moral hazard problems in the capital markets. Financial reports reduce adverse selection by providing basic information for investors and their agents before they make initial capital resource allocation decisions. Subsequently, after capital to start-ups in particular is associated to reduce moral hazard financial reports in order to reduce conflicts of interest between managers and investors by providing information in public between investors and managers. Various institutional mechanisms and information broker monitor and limit the manipulation of data, limit of the executives and managers’ ability to act in their own interests rather than the interests of investors. They also enhance the production of information, reduce conflict and provide incentive capital markets to effectively and efficiently channeling savings function of the economy’s most productive ways.
«Hide

from
Krishna G. Palepu,
Paul M. Healy,
Amy P. Hutton,
Robert S. Kaplan
11 pages.
Publication Date: Sep 12, 2001. Prod #: 102029-PDF-ENG
Financial Reporting Environment HBR case solution

[related_post themes="flat"]