A recent study shows that industry-specific analysis has no incremental advantage over economy-wide analysis in forecasting firm profitability. This result seems puzzling because some earlier studies have documented the importance of industry effects in explaining firm profitability. We reconcile the apparent inconsistency by showing that industry effects on profitability forecasting exist at t...

This paper examines whether the “soft” information contained in the text of management’s quarterly earnings press releases is incrementally informative over the company’s reported “hard” earnings news. We use Diction, a textual-analysis program, to extract various dimensions of managerial net optimism from more than 20,000 corporate earnings announcements over the period 1998 to 2006 and docume...

This paper investigates the effect of CFO gender on corporate tax aggressiveness. Focusing on firms that experience a male-to-female CFO transition, the paper compares those firms’ degree of tax aggressiveness during the preand posttransition periods. Using the probability of tax sheltering, the predicted unrecognized tax benefits, and the discretionary permanent book-tax differences to measure...

The FASB recently proposed the capitalization of acquired in-process R&D costs to replace the current practice of expensing this item. This proposal will likely be strongly opposed by corporate executives. We examine whether in-process R&D is an asset worthy of capitalization or an expense, and, if it is an asset, how reliable is its estimate. We find a significant association between the value...

We examine the effect of lending banks’ board representation (affiliated banker on board, or AFB) on conservative accounting. We argue that private information obtained through board representation enhances the monitoring and the influence of lenders and therefore reduces their demand for conservatism-facilitated debt contracting. Consistent with our hypothesis, we find that conservatism is mar...

ABSTRACT We examine outside board appointments of executives allegedly involved in governance failures—“tainted” executives—to shed light on appointing firms’ underlying motivations. Less attractive firms and those with greater advising needs are more likely to appoint tainted their boards than other are. Tainted appointees less be placed the nominating committees nontainted appointees. have si...

ABSTRACT Financial reporting decisions can be influenced by the distribution of executive decision-making power. We examine whether internal governance, process through which power to make is distributed between CEOs and their subordinates, influence level conservatism in such decisions. show that firms with better governance are more conservative. also find effect pronounced for less powerful ...

ABSTRACT Insurance pricing is subject to stricter regulation in some states than others. This cross-sectional variation, coupled with the occurrence of staggered deregulation several states, enables a powerful test political cost hypothesis that managers manipulate accruals mitigate adverse effects rate regulation. We show insurers understate their loss reserve more regulated regimes, finding c...

ABSTRACT We examine how investment professionals assess the usefulness of financial accounting information depending on their acquisition objectives and preparers' earnings management incentives. conduct a survey experiment based face-to-face interviews with document two main results. First, we find that, compared assigned firm valuation objective, those managerial performance evaluation object...

ABSTRACT This study investigates biases in tax decisions. In a series of four laboratory experiments with 303 students and 62 professionals, we document systematic tax-rate bias decisions under time constraints. Specifically, decision makers overestimate the relevance less complex information compared to more tax-base information. behavior leads suboptimal We also find that making, on average, ...