The corporate information environment develops endogenously as a consequence of asymmetries and agency problems between investors, entrepreneurs, managers. We provide framework for analyzing the three main decisions that shape in capital markets setting: (1) managers' voluntary reporting disclosure decisions, (2) disclosures mandated by regulators, (3) third-party intermediaries (analysts). review current research on regulation, intermediaries, determinants economic consequences financial...

ABSTRACT: This paper develops a model of financing that jointly determines firm’s capital structure, its voluntary disclosure policy, and cost capital. Investors who receive securities in return for supplying sometimes incur losses when they trade their with an informed trader. The policy the structure determine information advantage trader and, hence, size investors’ trading We establish hierarchy optimal policies varies volatility cash flows. Debt are often optimal, form debt—risk-free,...

ABSTRACT We study a model of earnings management and provide predictions about the time-series properties quality reporting bias. estimate to empirically separate two components investor uncertainty: fundamental economic uncertainty, information asymmetry between manager investors due noise. find that (1) null hypothesis zero bias is rejected; (2) ratio variance noise introduced by process shocks is, on average, 45 percent; (3) plays significantly less prominent role in valuation,...

ABSTRACT: This study models the interaction between a sell-side analyst and risk-averse investors. It derives an analyst’s optimal earnings forecast investors’ trading decisions in setting where payoff depends on volume generates as well error. In fully separating equilibrium, we find that biases upward (downward) if his private signal reveals relatively good (bad) news. The model predicts that: (1) more often than downward is average optimistic; (2) magnitude of bias increasing per-share...

ABSTRACT We study a model in which managers’ disclosure and investment decisions are both endogenous managers can manipulate their voluntary reports through (suboptimal) investment, financing, or operating decisions. Managers privately informed about the value of firm have incentives to voluntarily disclose information order obtain more favorable terms when issuing equity finance new profitable opportunity. The shows that treating as allowing yields qualitatively different predictions from...

From Casual to Causal Inference in Accounting Research: The Need for Theoretical Foundations

ABSTRACT: I analyze a manager's optimal earnings forecasting strategy and management policy in setting where both the mean variance of distribution generating firm's cash flows are unknown. The analysis shows that equilibrium price firm is function forecast, reported earnings, squared error forecast. model contains several predictions, including: (1) manager manipulates to reduce his forecast at announcement date; (2) stock more sensitive actual than forecast; (3) controlling for level...

ABSTRACT We study optimal compensation contracts that (1) are designed to address a joint moral hazard and adverse selection problem (2) based on performance measures, which may be manipulated by the agent at cost. In model, manager is privately informed about his productivity prior being hired firm. order incentivize exert productive effort, firm designs contract reported earnings, can manager. Our model predicts convex in earnings; less sensitive earnings than it would absent manager's...

This paper studies the joint effect of conservatism and aggregation on cost equity capital efficiency debt contracts. In model, a firm's two assets are valued at either lower-of-cost-or-market or fair value accounting report aggregates assets. While process leads inevitably to loss information, what information is lost depends regime. conservative regime, gains ignored while in regime off-set against losses.

We study a dynamic model of earnings quality and management in which firms take into account long- short-term considerations when reporting earnings. In addition to providing predictions about the time series properties bias, offers distinction between two components investor uncertainty: (i) fundamental economic uncertainty (ii) information asymmetry manager investors due or accounting distortions. also structurally estimate parameters empirically separate these uncertainty. This allows us...

This paper demonstrates the existence of two different kinds externalities induced by an auditor servicing multiple clients at same time. First, we show that capital market price for a client can increase in number qualified reports his issues to other clients, thus producing stock externality. Second, when audit firm has limited wealth, additional actually decrease quality and average likelihood failure relative single-client setting because reporting externalities. Our analysis also how...

Healthy farm animals have been found to act as a reservoir of extended-spectrum β-lactamase (ESBL)-producing Escherichia coli (E. coli). Therefore, the objective study was determine input antimicrobial active ceftiofur metabolites in stable via faeces and urine after intramuscular administration drug pigs elucidation ESBL resistance pattern treated untreated housed same barn during therapy. For determination minimal inhibitory concentration (MIC) method microdilutionaccording recommended...

ABSTRACT This paper studies equilibrium voluntary disclosures for a company financed with both debt and equity, where the firm's manager is compensated based on linear combination of market prices equity enterprise values (i.e., sum its debt). Such compensation policies span “all equity” contracts, debt” value” contracts. We show: (1) under increased always leads to reduced disclosure; (2) has no effect (3) all contracts that place positive weight values, more less (respectively, more)...

The paper studies a manager's optimal earnings forecasting strategy and management policy in setting where both the mean variance of distribution generating firm's cash flows are unknown. shows that equilibrium price firm is function forecast, reported earnings, squared error forecast. model contains several predictions, including: (i) manager manipulates to reduce his forecast at announcement date; (ii) stock more sensitive actual than forecast; (iii) controlling for level magnitude...

On December 5th and 6th 2014, the Stanford Graduate School of Business hosted Causality in Social Sciences Conference. The conference brought together several distinguished speakers from philosophy, economics, finance, accounting marketing with bold mission debating scientific methods that support causal inferences. We highlight key themes as relevant for researchers. First, we emphasize role formal economic theory informing empirical research seeks to draw inferences, offer a skeptical...

This paper studies the joint effect of conservatism and aggregation on cost equity capital efficiency debt contracts. In model, a firm's two assets are valued at either lower-of-cost-or-market or fair value accounting report aggregates assets. While process leads inevitably to loss information, what information is lost depends regime. conservative regime, gains ignored while in regime off-set against losses.

This paper studies an analyst’s forecasting strategy and a manager’s earnings management policy. When reporting earnings, the manager trades off disutility he obtains from falling short of forecast against costs manipulating earnings. The model predicts that (i) exceeds median reported earnings; (ii) analyst is more likely to revise his downward than upward; (iii) mean errors are larger in magnitude when has less precise information; (iv) stock market is, on average, sensitive forecasts.