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- Publisher
- Wiley
- Copyright
- © 2008, The Author(s) Journal Compilation © 2008 Blackwell Publishing
- ISSN
- 1058-6407
- eISSN
- 1530-9134
- DOI
- 10.1111/j.1530-9134.2008.00185.x
- Publisher site
- See Article on Publisher Site
Abstract
We investigate truth‐telling by an informed insider, or manager, who repeatedly forecasts cash flows to competitive investors in a standard message game. The insider cannot trade on or sell private information, but faces imperfectly hedgeable nonwage income shocks. When compensation depends on the current stock price, a partially revealing equilibrium may exist in which the manager manipulates his reports, and hence the stock price, to reduce consumption variance. Intuitively, the manager builds reputation in good times when honesty is affordable, and exploits reputation in times of need. Endogenous reputation for honesty thus follows from a self‐insurance motive.
Journal
Journal of Economics & Management Strategy – Wiley
Published: Jun 1, 2008