This study examines how takeover decisions are influenced by the quality of information in target firms’ earnings. We find that bidders are more likely to prefer negotiations in deals involving targets with poor earnings quality. Moreover, in such deals, earnings quality and takeover premiums are negatively related, suggesting that bidders obtain valuable private information through negotiation...

DuPont analysis, a common form of financial statement analysis, decomposes return on net operating assets into two multiplicative components: profit margin and asset turnover. These two accounting ratios measure different constructs and, accordingly, have different properties. Prior research has found that a change in asset turnover is positively related to future changes in earnings. This pape...

Most prior studies assume a positive relation between debt and earnings management, consistent with the financial distress theory. However, the empirical evidence for financial distress theory is mixed. Another stream of studies argues that lenders of short-term debt play a monitoring role over management, especially when the firm’s creditworthiness is not in doubt. To explore the implications ...

Increasing income and wealth inequality has led to renewed interest in understanding and explaining wealth and income distributions, and in particular the recent growth in their top shares (Piketty, 2014). The literature has largely emphasized the role of earnings inequality in explaining wealth inequality. Indeed, Bewley-Aiyagari economies, which focus on precautionary savings as an optimal re...

We examine the increasing variance of earnings of white men over the 1970s and 1980s by focusing on changes in the covariance structure of earnings. Using data from the Michigan PSID from 1969-1987, we find that about half of the increase has arisen from an increase in the variance of the permanent component of earnings and half from an increase in the variance of the transitory component, wher...

Substantial research shows that high-quality early childhood education programs have a large economic payoff. This payoff is increased earnings for former child participants, increased earnings for parents, and increased earnings for all workers when average worker skills improve. A program package of universal pre-K, combined with child care and parenting support for all low-income families, w...

Cross-sectional data capture only a point in time and miss individual changes in earnings, labor force participation, marriage, fertility, and health. Because panel data follow individuals over time, they do not have this problem. The problems or concerns with cross-sectional data may be compounded when these data are used to make projections. Iams and Sandell (1997) found that using panel data...

In this paper, I examine a new approach for measuring earnings quality, defined as the closeness of reported earnings to “permanent earnings,” based on firm decisions with regard to capital and labor investments. Specifically, I measure earnings quality as the contemporaneous association between changes in the levels of capital and labor investment and the change in reported earnings. This appr...

Accurate projections of lifetime earnings are useful in projecting Social Security benefits, trust fund balances, and economic resources of the elderly and the effects of changes in Social Security policy. This article projects lifetime Social Security earnings until retirement using data from the Survey of Income and Program Participation (SIPP) matched to Social Security records of annual ear...