Title

Marking to market and inefficient investment decisions

Publication Type

Journal Article

Publication Date

4-2017

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

ISSN

0025-1909

Identifier

10.1287/mnsc.2016.2696

Publisher

INFORMS (Institute for Operations Research and Management Sciences)

Additional URL

https://doi.org/10.1287/mnsc.2016.2696

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