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Misreporting, Regulatory Disclosure, and the Revolving Door

Raghunandan, Aneesh (2018) Misreporting, Regulatory Disclosure, and the Revolving Door. .

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Identification Number: 10.2139/ssrn.3035296

Abstract

I develop a model of regulatory behavior as it relates to misreporting and regulatory disclosure. There is a self-interested regulator who may or may not wish to revolve to a higher-paying private-sector job. Whether he wants to do so, as well as his talent level and available resources, is private information that he may choose to disclose. The two types of regulators (revolvers and non-revolvers) face different decision problems. Revolvers would like to catch as much misreporting as possible in order to establish a track record (regardless of how much goes undetected). By contrast, non-revolvers would like for there to be as little undetected misreporting as possible. I establish a nontrivial disclosure equilibrium where the regulator reveals information for certain levels of available resources. Despite the presence of the revolving door, allowing selective disclose can lead to lower overall ex-ante expected misreporting. The model provides a lens through which to understand recent empirical studies on how regulators with private-sector ambitions behave, and suggests potential avenues for future empirical research. Furthermore, in light of a burgeoning empirical literature on regulatory disclosure and transparency, the model documents a potentially negative side effect of such transparency.

Item Type: Monograph (Working Paper)
Additional Information: © 2018 The Author
Divisions: Accounting
Subjects: H Social Sciences > HG Finance
Date Deposited: 18 Sep 2019 14:39
Last Modified: 18 Oct 2019 23:27
URI: http://eprints.lse.ac.uk/id/eprint/101657

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