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SUMMARY:Misreporting and Feedback Effect - Professor Hui Chen\, University
  of Zurich
DTSTART:20171012T120000Z
DTEND:20171012T130000Z
UID:TALK66461@talks.cam.ac.uk
CONTACT:CERF/CF Admin
DESCRIPTION:Stock price often provides firms with new information\, which 
 can be used in the firms' subsequent real decisions. We examine how this i
 nformational feedback from the financial market affects a myopic firm mana
 ger's incentive to misreport\, and how the misreporting further affects th
 e firm's price and value. We find that the manager overstates his report m
 ore in the presence of feedback\, but this misreporting brings forth both 
 positive price and real effects for the firm. Intuitively\, overstating th
 e report encourages information production in the market because (a) it re
 nders accounting reports less reliable as a source of information\, and (b
 ) investors expect higher trading profits from larger capital investment. 
 The new incremental information improves investment efficiency when it is 
 revealed to the firm manager through trading and used in the firm's subseq
 uent investment decisions. As a consequence\, the capital investment is hi
 gher when there is feedback effect.
LOCATION:Room W4.03 Cambridge Judge Business School
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