Certification vs. Credibility in the Presence of Soft Information∗

نویسندگان

  • Jeremy Bertomeu
  • Iván Marinovic
چکیده

This paper studies voluntary certification when (a) there is uncertainty about managerial propensity to report truthfully, (b) some components of the firm’s value may be certified for a cost (“hard”), (c) other components may be disclosed but not certified free of misstatements (“soft”). We establish that untruthful managers are more likely to certify hard information and that, among truthful managers, those with more favorable soft information also certify more. Even if certification is costless, unraveling to a complete certification of the hard information may not occur. We develop several testable predictions linking certification to trust, reporting quality, the likelihood andmagnitude of frauds, andmarket prices. Themodel hasmany natural applications, including credit ratings, press releases, auditing, going dark and voluntary appraisals.

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تاریخ انتشار 2012