Paulo Maduro | Papers

Working papers

Earnings misreporting in an information choice environment [pdf]

I study earnings manipulation in a rational expectations equilibrium model with moral hazard and stock-based compensation. Managers are able to bias the financial statement, while speculators observe financial statements and acquire private information about the companies' payoffs. I show three main results. First, environments with smaller information asymmetry between managers and market participants provide stronger incentives for managers to manipulate. Second, at equilibrium, the intensity of performance pay is smaller for managers working in environments with smaller information asymmetry, counteracting (and overtaking) the incentives coming from asymmetric information itself. Third, I consider an environment where a regulator more intensively scrutinizes companies with higher information asymmetry. In that case, managers who bias the financial statement the most face only intermediate detection probabilities and intermediate values of performance pay at equilibrium.

Research in progress

Misreporting over the business cycle

I study misreporting in a mechanism design model in which (i) people cannot commit to future actions; (ii) there is no monitoring technology; (iii) buyers observe output only after they and sellers have parted ways; and (iv) the planner takes the growth rate of money as a constraint. I show that misreporting is more prevalent in good times and, in such times, policies that attempt to mitigate misreporting are more effective. I also show that the highest inflation rate that still implements the first-best allocation is higher than it would be if buyers observed output immediately.


Can business cycles increase growth? (joint with Gilberto Noronha)

This paper studies whether volatility can increase growth. Quantitatively, our model predicts that consumption growth would be up to 0.25% lower in a world without cycles and this implies negative welfare costs up to 1.1% of consumption.