Welfare Effects of Timely Reporting
Mitchell A. Farlee
University of British Columbia (UBC) - Sauder School of Business
Review of Accounting Studies, Vol 3, 1998
A principal-agent model is examined in which a manager acquires private cost information sequentially. All possible communication schemes are equivalent to one of two: (1) timely reporting, where the manager reports as soon as possible, and (2) delayed reporting, where the manager delays the report of the first of two signals. In the primary case identified, timely reporting is shown to be "owner valuable." However, the manager is better off under delayed reporting. Finally, total expected surplus is shown greater under delayed reporting. The owners' benefit from timely reporting is less than the manager's loss.
JEL Classification: M40, M46, D82
Date posted: April 27, 1999
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