Fachbereich 9

School of Business Administration and Economics

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Accounting Theory MIII

Credit points: 5 ECTS

Qualification goals

Students should acquire advanced skills in understanding the essential characteristics, typical forms and limits of knowledge of selected - studies from analytical accounting research. They practice understanding the connections and differences between different literature sources and should be able to analyse these sources economically.


Intensive discussion of fundamental and current research work in the field of analytical accounting research.

Course Outline

1.       Introduction: The Market for „Lemons“

2.       Market Microstructure Games

a.       The Kyle model

b.      The Glosten-Milgrom model

3.       Persuasion Games

a.       Costless information acquisition and full revelation in Capital markets

b.      Costly information acquisition and incomplete revelation in Capital markets

c.       Disclosure costs and incomplete revelation in Capital markets

d.      Disclosure of private information in Product markets

4.       Costless Signaling Games (the Crawford-Sobel model)

5.       Costly Signaling Games

a.       Accounting Earnings Management

b.      Real Earnings Management

Components and semester hours per week

Lecture (1 semester hour per week)


Winter semester

Examinantion per formence



Akerlof, George A. (1970) “The Market for ‘Lemons’: Quality Uncertainty and the Market Mechanism”, The Quarterly Journal of Economics, 84 (3), 488–500.

Beyer, Anne; Cohen, Daniel A.; Lys, Thomas Z. and Walther, Beverly R. (2010) “The financial reporting environment: Review of the recent literature”, Journal of Accounting and Economics, 50, 296–343.

Christensen, Peter O. and Feltham, Gerald A. (2003) Economics of Accounting Volume I: Information in Markets, Kluwer, Dordrecht.

Crawford, Vincent P. and Sobel, Joel (1982) “Strategic Information Transmission”, Econometrica, 50 (6), 1431–1451.

Darrough, Masako N. (1993) “Disclosure Policy and Competition: Cournot vs. Bertrand”, The Accounting Review, 68 (3), 534–561.

Dye, Ronald A. (1985) “Disclosure of Nonproprietary Information”, Journal of Accounting Research, 23, 123–145.

Ewert, Ralf and Wagenhofer, Alfred (2005) “Economic Effects of Tightening Accounting Standards to Restrict Earnings Management”, The Accounting Review, 80 (4), 1101–1124.

— (2011) “Earnings Management, Conservatism, and Earnings Quality”, Foundations and Trends in Accounting, 6 (2), 65–186.

Fischer, Paul E. and Verrecchia, Robert E. (2000) “Reporting Bias”, The Accounting Review, 75 (2), 229–245.

Foucault, Thierry; Pagano, Marco and Röell, Ailsa (2013) Market Liquidity – Theory, Evidence, and Policy, Oxford University Press, Oxford.

Glosten, Lawrence R. and Milgrom, Paul R. (1985) “Bid, Ask and Transaction Prices in a Specialist Market with heterogeneously informed Traders”, Journal of Financial Economics, 14, 71–100.

Grossman, Sandord J. (1981) “The informational role of warranties and private disclosure about product quality”, Journal of Law and Economics, 24, 461–483.

de Jong, Frank and Rindi, Barbara (2009) The Microstructure of Financial Markets, Cambridge University Press, Cambridge.

Jung, Woon-Oh and Kwon, Young K. (1988) “Disclosure When the Market Is Unsure of Information Endowment of Managers”, Journal of Accouting Research, 26, 146–153.

Kyle, Albert S. (1985) “Continuous Auctions and Insider Trading”, Econometrica, 53 (6), 1315–1335.

Milgrom, Paul R. (1981) “Good news and bad news: representation theorems and applications”, Bell Journal of Economics, 12, 380–391.

Pae, Suil (1999) “Acquisition and discretionary disclosure of private information and ist implications for firms’ productive activities”, Journal of Accounting Research, 37, 465–474.