The interaction among competition, an internal control problem, and reporting systems
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The Ohio State University / OhioLINK
2001
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ndltd-OhioLink-oai-etd.ohiolink.edu-osu12612368352021-08-03T05:57:51Z The interaction among competition, an internal control problem, and reporting systems Rothenberg, Naomi R. <p>This dissertation uses a model of a decentralized firm to study a capital investment decision involving an option to wait to invest. Decentralization leads to information asymmetry where the agent has private information about investment cost. A control problem arises because the agent has an incentive to misrepresent his information. The principal can commit to funding decisions but cannot commit to the exact circumstances under which he will wait to invest. The dissertation focuses on the interaction among competition, a public reporting system and an internal coarse reporting system. First, the effects of both competition and the control problem on the capital investment decision are analyzed. The control problem and lack of commitment lead to over-investment in the current project relative to if there was no control problem. Competition affects investment revenues and can cause under-investment in the current project. The benefit of competition to the principal is that it substitutes for commitment to the investment decision. Decentralization is beneficial to the principal because it substitutes for coordination between the principals who cannot credibly commit to less investment in the second project. Next, a reporting system is studied where the agent's report of the current investment project is publicly disclosed and observed by a rival firm. Conditions are provided under which public disclosures are beneficial to the principal without the control problem because disclosures can also substitute for inter-firm coordination, but harmful to the principal with the control problem. Finally, an internal solution to the principal's lack of commitment is studied. The principal and agent can commit to write contracts for funding and investing decisions, but the principal cannot commit to not renegotiate the contract. Renegotiation and a detailed reporting system destroy the option value, which is the increase in expected profits from having the option to wait to invest. An internal coarse reporting system which limits the agent's reporting restores some of the option value and is a costly substitute for commitment. The results imply the significance of considering the effect of both the control problem and competition when designing an internal reporting system.</p> 2001 English text The Ohio State University / OhioLINK http://rave.ohiolink.edu/etdc/view?acc_num=osu1261236835 http://rave.ohiolink.edu/etdc/view?acc_num=osu1261236835 unrestricted This thesis or dissertation is protected by copyright: all rights reserved. It may not be copied or redistributed beyond the terms of applicable copyright laws. |
| collection |
NDLTD |
| language |
English |
| sources |
NDLTD |
| author |
Rothenberg, Naomi R. |
| spellingShingle |
Rothenberg, Naomi R. The interaction among competition, an internal control problem, and reporting systems |
| author_facet |
Rothenberg, Naomi R. |
| author_sort |
Rothenberg, Naomi R. |
| title |
The interaction among competition, an internal control problem, and reporting systems |
| title_short |
The interaction among competition, an internal control problem, and reporting systems |
| title_full |
The interaction among competition, an internal control problem, and reporting systems |
| title_fullStr |
The interaction among competition, an internal control problem, and reporting systems |
| title_full_unstemmed |
The interaction among competition, an internal control problem, and reporting systems |
| title_sort |
interaction among competition, an internal control problem, and reporting systems |
| publisher |
The Ohio State University / OhioLINK |
| publishDate |
2001 |
| url |
http://rave.ohiolink.edu/etdc/view?acc_num=osu1261236835 |
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AT rothenbergnaomir theinteractionamongcompetitionaninternalcontrolproblemandreportingsystems AT rothenbergnaomir interactionamongcompetitionaninternalcontrolproblemandreportingsystems |
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