Monitor Reputation and Transparency
61 Pages Posted: 20 Nov 2020
Date Written: September 21, 2020
We study the disclosure policy of a regulator overseeing a monitor with reputation concerns. The monitor faces a manager, who chooses how much to manipulate based on the monitor’s reputation. Reputational incentives are strongest for intermediate reputations. Instead of providing transparency, the regulator’s disclosure policy aims to keep the monitor’ s reputation intermediate, even at the cost of diminished incentives. Beneficial schemes feature random delay. Commonly used ones, which feature immediate disclosure or fixed time delay, destroy reputational incentives. Surprisingly, the regulator discloses more aggressively when she has better enforcement tools.
Keywords: Monitoring, Regulatory Disclosure, Reputation, Bank Regulation, Auditing
JEL Classification: G21, G28, D82, D83
Suggested Citation: Suggested Citation