Abstract
Entrepreneurs report unverifiable soft information to investors. The credibility of soft information depends on the entrepreneur's reputation concern. In equilibrium, high-talent entrepreneurs, who are better at developing profitable projects in the future and therefore have stronger reputation concerns, signal their talents by producing honest reports on current projects. We show how probabilistic third-party monitoring of reporting quality changes some firms’ reporting strategies, which again spill over to the financing costs of firms not directly affected by improved monitoring. In some cases, improved monitoring of reporting quality can reduce firms’ reputation concerns and result in less efficient communication of information.
| Original language | English |
|---|---|
| Pages (from-to) | 91-106 |
| Number of pages | 16 |
| Journal | Journal of Economic Behavior and Organization |
| Volume | 136 |
| DOIs | |
| Publication status | Published - 2017 Apr 1 |
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Keywords
- Cheap talk
- Credibility
- Investments
ASJC Scopus subject areas
- Economics and Econometrics
- Organizational Behavior and Human Resource Management
Cite this
Communication of soft information : Reputation and imperfect enforcement of reporting quality. / Choi, Jay Pil; Kristiansen, Eirik Gaard; Nahm, Jae Hyon.
In: Journal of Economic Behavior and Organization, Vol. 136, 01.04.2017, p. 91-106.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Communication of soft information
T2 - Reputation and imperfect enforcement of reporting quality
AU - Choi, Jay Pil
AU - Kristiansen, Eirik Gaard
AU - Nahm, Jae Hyon
PY - 2017/4/1
Y1 - 2017/4/1
N2 - Entrepreneurs report unverifiable soft information to investors. The credibility of soft information depends on the entrepreneur's reputation concern. In equilibrium, high-talent entrepreneurs, who are better at developing profitable projects in the future and therefore have stronger reputation concerns, signal their talents by producing honest reports on current projects. We show how probabilistic third-party monitoring of reporting quality changes some firms’ reporting strategies, which again spill over to the financing costs of firms not directly affected by improved monitoring. In some cases, improved monitoring of reporting quality can reduce firms’ reputation concerns and result in less efficient communication of information.
AB - Entrepreneurs report unverifiable soft information to investors. The credibility of soft information depends on the entrepreneur's reputation concern. In equilibrium, high-talent entrepreneurs, who are better at developing profitable projects in the future and therefore have stronger reputation concerns, signal their talents by producing honest reports on current projects. We show how probabilistic third-party monitoring of reporting quality changes some firms’ reporting strategies, which again spill over to the financing costs of firms not directly affected by improved monitoring. In some cases, improved monitoring of reporting quality can reduce firms’ reputation concerns and result in less efficient communication of information.
KW - Cheap talk
KW - Credibility
KW - Investments
UR - http://www.scopus.com/inward/record.url?scp=85014477679&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85014477679&partnerID=8YFLogxK
U2 - 10.1016/j.jebo.2017.02.002
DO - 10.1016/j.jebo.2017.02.002
M3 - Article
AN - SCOPUS:85014477679
VL - 136
SP - 91
EP - 106
JO - Journal of Economic Behavior and Organization
JF - Journal of Economic Behavior and Organization
SN - 0167-2681
ER -