Publication Type
Journal Article
Version
submittedVersion
Publication Date
8-2018
Abstract
We examine how mark-to-market accounting affects the investment decisions of managers with reputation concerns. Reporting the current market value of a firm’s assets can help mitigate agency problems because it provides outsiders (e.g., shareholders) with new information against which the management’s decisions can be evaluated. However, the fact that the assets’ market value is informative can also have a negative side effect: managers may shy away from investments that indicate conflicting private information and would damage their reputation. This effect can lead to inefficient investment decisions and make marking to market less desirable when market prices are more informative.
Keywords
marking to market, investment decisions, reputation, agency problem
Discipline
Finance | Finance and Financial Management | Marketing
Research Areas
Finance
Publication
Management Science
Volume
64
Issue
8
First Page
3469
Last Page
3970
ISSN
0025-1909
Identifier
10.1287/mnsc.2016.2696
Publisher
INFORMS (Institute for Operations Research and Management Sciences)
Citation
OTTO, Clemens A. and VOLPIN, Paolo F..
Marking to market and inefficient investment decisions. (2018). Management Science. 64, (8), 3469-3970.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/5393
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1287/mnsc.2016.2696