Optimal penalty and accounting policy

Masatomo Akita, Yusuke Osaki*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


This study considers risky investment projects under adverse selection and examines optimal penalties for erroneous auditing reports to maximize social welfare. These penalties give firms an incentive to choose accounting policies that maximize social welfare. We characterize the optimal penalties such that efficient firms choose an aggressive accounting policy and inefficient firms choose a conservative accounting policy.

Original languageEnglish
Pages (from-to)5292-5299
Number of pages8
JournalApplied Economics
Issue number54
Publication statusPublished - 2016 Nov 19
Externally publishedYes


  • Accounting policy
  • adverse selection
  • audit
  • investment efficiency
  • optimal penalty

ASJC Scopus subject areas

  • Economics and Econometrics


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