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Marking to Market and Inefficient Investment Decisions

Otto, C.A. and Volpin, P. (2017). Marking to Market and Inefficient Investment Decisions. Management Science, doi: 10.1287/mnsc.2016.2696

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 ineffcient investment decisions and make marking to market less desirable when market prices are more informative.

Publication Type: Article
Additional Information: The final publication will be available on Management Science published by INFORMS on publication at http://pubsonline.informs.org/journal/mnsc.
Publisher Keywords: Marking to Market, Investment Decisions, Reputation, Agency Problem
Subjects: H Social Sciences > HG Finance
Departments: Cass Business School > Finance
URI: http://openaccess.city.ac.uk/id/eprint/16502
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