Working Paper: NBER ID: w3193
Authors: Stewart C. Myers
Abstract: This paper develops a signaling model in which accounting information improves real investment decisions. Pure cash flow reporting is shown to lead to underinvestment when managers have superior information but are acting in shareholders' interests. Accounting by prespecified, "objective" rules alleviates the underinvestment problem.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Managers (who have superior information) (D83) | Underinvestment (G31) |
| Underinvestment (G31) | Investors (who misinterpret cash flows) (G40) |
| Accounting by prespecified objective rules (L21) | Underinvestment (G31) |
| Accounting by prespecified objective rules (L21) | Investors (who misinterpret cash flows) (G40) |