Please use this identifier to cite or link to this item:
Accounting and the Financial Accelerator
|Title:||Accounting and the Financial Accelerator|
|Date Issued:||15 Aug 2020|
|Abstract:||We extend the general equilibrium economy of Holmstrom and Tirole (1997) Â¨|
to optimal reporting of productive assets and examine when the accounting process
can contribute to fnancial acceleration. Given a small change in aggregate capital
stock, the economy may respond with large readjustments in accounting policies,
prices and investment activity. A neutral accounting system, defned as a policy that does not distort decision-making, is optimal when capital is abundant but, after a contraction in aggregate capital, the accounting system becomes initially liberal and then conservative. Surprisingly, accounting policies maximizing frm value, i.e., the net cash ï¬‚ows to shareholders, may lead to self-fulflling equilibria with ineffcient forced liquidations. The theory offers a stylized paradigm to evaluate accounting policies in the aggregate.
|Appears in Collections:||
Please email email@example.com if you need this content in ADA-compliant format.
Items in ScholarSpace are protected by copyright, with all rights reserved, unless otherwise indicated.