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Law in Context

Abstract from Volume 25 No 2 (2007) Law and Finance

Incentives for Auditor Collusion in Pre-Sarbanes-Oxley Regulatory Environment

Abigail Brown is a post-doctoral fellow in the School of Finance and Economics at University of Technology, Sydney. She received her PhD in Policy Analysis from the Pardee RAND Graduate School in Santa Monica, California. Her current work continues her focus on the incen­tives in the corporate governance system, particularly those facing auditors.

This article develops a single-play game theory model that looks at the strategic interactions between auditors and managers. The article adds to the literature by explicitly modelling the possibility of collusion in a context where the outcome is unverifiable and the manager has the possibility of funding side-payments in such a way that they have little effect on his personal payoff.

(2007) 25 No 2 Law in Context 178

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