Abstract
In this paper, we investigate an aggressive accounting system with hidden action. We present a five-stage game. In this model, the agent can choose an accounting system and his/her effort level before he sees his signal and payoff realized. The basic tension in this model is that if he chooses an aggressive system, the probability of receiving payment is high, but he sometimes pays compensation for damages incurred. We find that when compensation for damages and the accuracy and rigidity of the accounting system increases, the probability that the agent may choose an aggressive accounting system decreases. However, if the compensation for damages is not transferred to the shareholder, the agent’s strategy is not affected. In addition, We find that the agent’s reward is affected by not only the cost of the agent’s effort but also the accuracy of the accounting system. When the accounting system becomes more accurate, the reward decreases.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
