ABSTRACT
So, the debate on accounting transparency that arose at the beginning of the century is still open. Recent literature has focused on the impact of these events on the evaluation of corporate liabilities, namely equity and bonds. On theoretical grounds, Duffie and Lando (2001) were the first to attempt to model the impact of accounting noise on the credit spread term structure. On empirical grounds, Yu (2005) proved that accounting noise is actually priced in the market: a risk premium is charged to the credit spreads of firms that adopt less transparency. Fraud events that took place both in the United States (WorldCom, Tyco, Enron, etc.) and in Europe (Cirio, Marconi, Parmalat, etc.) in the first years of the century raised the issue of distinguishing between unbiased noise owing to measurement errors and cases of deliberate fraud. Inspired by these cases, Baglioni and Cherubini (2006) proposed a model adding the risk of deliberate fraud to measurement errors in accounting figures. The empirical issue whether the risk of running into a case of fraud is actually accounted for in prices, and how it impacts on the values of equity and debt remains an open question.
