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'Providing managerial accounting information in the presence of a supplier (NB different starting time)'

Detail Summary
Date 12 December 2019
Time 12:00 -13:15


Management accounting research addresses if it is beneficial for the firm owner to provide superior private information to a self-interested manager. An informed manager may improve the owner's decision-making and increase the firm's profit (option value effect") while the manager's rent seeking behavior is harmful since eliciting truthful reports is costly (information rent effect"). Considering the owner-manager relationship, these two effects lead to a simple decision rule such that providing information to a manager (installing an information system) is beneficial if the former effect outweighs the latter. The novelty of this paper is that it adds an external supplier to this relationship which provides an input for the rm. Compared to the no-supplier case, there is an additional \input price effect" which crucially changes the owner's decision of providing information. Instead of a simple decision based on two countervailing effects, the input price effect generates multiple separate regions where installing an information system is beneficial. Surprisingly, even if the rm owner could access information without the manager's expertise, the owner might prefer a situation of information asymmetry and the manager's reporting. Intuitively, paying an information rent works as a commitment towards an over-charging supplier to benefit from the input price effect.