TY  - SER
AU  - Corona,Carlos
AU  - Randhawa,Ramandeep,S.
TI  - The value of confession: admiting mistakes to build reputation
KW  - Contabilidad
KW  - Publicaciones seriadas
KW  - Empresas
KW  - Opinión pública
KW  - Auditoría
KW  - Modelos matemáticos
N2  - Often, firms reveal oversights and bad decisions publicly through their financial reporting (for instance, restating earnings, impairing goodwill, etc.). These “confessions,” which usually lead to immediate reputation losses, may be attributed to attempts to be perceived as transparent or to attempts to avoid likely litigation costs. In this paper, however, we argue that reputational concerns about perceived ability alone can provide firms with strong enough incentives to confess their mistakes, even in the absence of other non-reputational disciplinary mechanisms. Analyzing the repeated interaction between a firm and an external evaluator who may detect the firm's mistakes, we show that, in equilibrium, a confession places the firm under higher future scrutiny, which is more costly for lower-quality firms. Consequently, in equilibrium, higher-quality firms confess mistakes more often
ER  -