Lying to Speak the Truth: Selective Manipulation and Improved Information Transmission

ABSTRACT We analyze a principal‐agent model in which an effort‐averse agent can manipulate a publicly observable performance report. The principal cannot observe the agent's cost of effort, her effort choice, and whether she manipulated the report. An optimal contract links compensation to the realized output and the (possibly manipulated) report. Manipulation can be beneficial to the principal because it can make the report more informative about the agent's effort choice, thereby reducing the agent's information rent. This is achieved through a contract that incentivizes the agent to selectively engage in manipulation based on her effort choice.

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Publication Details

Journal
The Journal of Finance
Published
2024-08-19
DOI
https://doi.org/10.1111/jofi.13375
Citations
3
Primary Topic
Auditing, Earnings Management, Governance
Type
article
Field-Weighted Citation Impact
1.89
Controls
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article

Lying to Speak the Truth: Selective Manipulation and Improved Information Transmission

Paul Povel, Günter Strobl
3 citations
The Journal of Finance
Auditing, Earnings Management, Governance
1.89
article

Lying to Speak the Truth: Selective Manipulation and Improved Information Transmission

Paul Povel, Günter Strobl
article en
3 citations

Abstract

ABSTRACT We analyze a principal‐agent model in which an effort‐averse agent can manipulate a publicly observable performance report. The principal cannot observe the agent's cost of effort, her effort choice, and whether she manipulated the report. An optimal contract links compensation to the realized output and the (possibly manipulated) report. Manipulation can be beneficial to the principal because it can make the report more informative about the agent's effort choice, thereby reducing the agent's information rent. This is achieved through a contract that incentivizes the agent to selectively engage in manipulation based on her effort choice.

The Journal of FinanceVol. 79(6)
Wolfgang Pauli Institute (AT)
Peace, Justice and strong institutions
Openalex Percentile: Top 12%
Auditing, Earnings Management, Governance
1.89
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