Asymmetric Monitoring: Good Versus Bad News Verification

Schmalenbach Business Review, Vol. 56, 2004

17 Pages Posted: 9 Mar 2005

See all articles by John Christensen

John Christensen

University of Southern Denmark - Department of Accounting and Finance

Joel S. Demski

University of Florida - Fisher School of Accounting

Abstract

We analyze a principal-agent setting with multiple sources of contracting information in which the signal from each source can be unmistakably interpreted as "good" or "bad" news. We then ask whether it is best to condition the acquisition of one of the information sources on whether the earlier reporting source has reported "good" or "bad" news. That is, is it efficient to "chase the good news" or to "chase the bad news"? The answer depends on whether the earlier source is publicly observed or self-reported by the agent. We also explore ties to institutional features, and in particular conservative accounting treatments.

Keywords: Agency, Asymmetric Monitoring, Conservative Accounting

JEL Classification: D82, M40, M55

Suggested Citation

Christensen, John A. and Demski, Joel S., Asymmetric Monitoring: Good Versus Bad News Verification. Schmalenbach Business Review, Vol. 56, 2004. Available at SSRN: https://ssrn.com/abstract=676401

John A. Christensen (Contact Author)

University of Southern Denmark - Department of Accounting and Finance ( email )

Campusvej 55
Odense DK-5230
Denmark

Joel S. Demski

University of Florida - Fisher School of Accounting ( email )

Warrington College of Business
PO Box 117166
Gainesville, FL 32611-7166
United States
352-392-7597 (Phone)
352-378-1079 (Fax)

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