天美传媒

Date Posted:Tue, 15 Apr 2025 11:26:46 -0500
Jensen's (1986) analysis of the agency costs of free cash flow radically transformed our understanding of corporate payout policy. This paper details the main pre-Jensen advances in the payout literature, explains how his analysis profoundly altered the way financial economists view payout policy, and discusses prominent regularities that provide real-world texture for understanding the importance of his insights about payout policy. These regularities include: (i) the dominance (measured as a percent of value or earnings) of the public equity markets by firms in the distribution phase of the corporate lifecycle; (ii) changes since the 1980s in aggregate cash payouts, the profitability of payers, payout rates, and the set of firms that dominate the payout supply; and (iii) the recent politicization of share repurchases.

Date Posted:Wed, 11 Jan 2023 02:26:53 -0600
We provide evidence on the payout policies and guidance practices of U.S. non-financial firms since 2000. We argue that managers adopt systematic capital management policies that link payouts and guidance and help credibly convey information about their firms? prospects. We examine how payout policies and guidance are related in the cross section, evolve over time, and respond to the GFC and COVID-19 shocks. We find a robust cross-sectional relation between payout policies and guidance (including after we condition on firm characteristics) and that both shocks led to changes in payout policies that are systematically associated with contemporaneous changes in guidance. Over time, there is a shift towards longer-horizon guidance (away from quarterly earnings guidance). Our evidence supports the view that managers strategically set payouts and guidance in a coordinated manner consistent with their views about underlying firm profitability and prospects.

Date Posted:Mon, 12 Sep 2022 17:45:19 -0500
We survey corporate managers of both guiding and non-guiding firms. We find that managers of firms that provide guidance say that they: (1) primarily provide guidance to satisfy analyst and investor demands and manage analysts' earnings expectations; (2) are relatively unconcerned about proprietary or litigation costs (managers of non-guiding firms are more likely to see litigation risk as a concern); (3) predominantly issue guidance that is conservative relative to their internal expectations; (4) are concerned that guidance induces analysts and investors to focus on the short-term but not that it induces managers themselves to make myopic decisions internally. We also find that managers are miscalibrated about the accuracy of their guidance and that significant quantities of guidance that managers say their firms issue are not captured by conventional sources. We offer several other new insights relevant to the voluntary disclosure literature.

Date Posted:Fri, 15 Jul 2022 05:06:38 -0500
We analyze nearly 7,000 shareholder activist campaigns across 56 countries and show that shareholder activism is now a global phenomenon. Our analyses provide evidence on factors that explain the spread of activism and two related questions. First, we measure the extent to which country-level governance regulations facilitate shareholder engagement, a necessary condition for activism, and show that our measure of shareholder-empowering governance regulation explains cross-country variation in the emergence of activism. Second, we show that changes in these regulations also affect outcomes for firms that face a high threat of activism but that are not targeted by activists (i.e., there are spillovers)鈥攊ncluding increased profitability, higher payouts, and reduced investment. These effects are most pronounced in countries with weak minority shareholder rights, where activism had previously been relatively unimportant.

Date Posted:Tue, 22 Mar 2022 16:17:18 -0500
We analyze nearly 7,000 activist shareholder campaigns across 56 countries and show that shareholder activism is now a global phenomenon. Our analyses provide evidence on the factors that explain the spread of activism and on two related questions. First, we measure the extent to which a country鈥檚 governance regulations facilitate shareholder engagement, a necessary condition for activism, and show that our measure of shareholder-empowering corporate governance regulation explains cross-country variation in the emergence of activism. Second, we show that for firms facing a high threat of activism but not yet targeted by an activist campaign, changes in these regulations affect corporate outcomes (i.e., there are spillovers)鈥攊ncluding increased profitability, higher payouts, and reduced investment. These effects are most pronounced in countries with weak minority shareholder rights, where activism had previously been relatively unimportant.

Date Posted:Mon, 21 Mar 2022 04:46:08 -0500
We analyze nearly 7,000 activist shareholder campaigns across 56 countries and show that shareholder activism is now a global phenomenon. Our analyses provide evidence on the factors that explain the spread of activism and on two related questions. First, we measure the extent to which a country鈥檚 governance regulations facilitate shareholder engagement, a necessary condition for activism, and show that our measure of shareholder-empowering corporate governance regulation explains cross-country variation in the emergence of activism. Second, we show that for firms facing a high threat of activism but not yet targeted by an activist campaign, changes in these regulations affect corporate outcomes (i.e., there are spillovers)鈥攊ncluding increased profitability, higher payouts, and reduced investment. These effects are most pronounced in countries with weak minority shareholder rights, where activism had previously been relatively unimportant.

Date Posted:Mon, 21 Mar 2022 04:46:07 -0500
We analyze nearly 7,000 activist shareholder campaigns across 56 countries and show that shareholder activism is now a global phenomenon. Our analyses provide evidence on the factors that explain the spread of activism and on two related questions. First, we measure the extent to which a country鈥檚 governance regulations facilitate shareholder engagement, a necessary condition for activism, and show that our measure of shareholder-empowering corporate governance regulation explains cross-country variation in the emergence of activism. Second, we show that for firms facing a high threat of activism but not yet targeted by an activist campaign, changes in these regulations affect corporate outcomes (i.e., there are spillovers)鈥攊ncluding increased profitability, higher payouts, and reduced investment. These effects are most pronounced in countries with weak minority shareholder rights, where activism had previously been relatively unimportant.

Date Posted:Tue, 18 Jan 2022 06:13:19 -0600
We use a long time-series from Australia to investigate audit market concentration. We show that increasing skewness in the size of public companies is associated with increased market concentration. The emergence of the Big N is also associated with various differences (relative to non-Big N firms) which suggest Big N firms made sunk cost investments to differentiate and grow. These changes occurred around the time audit profession lifted restrictions on advertising and promotion, also consistent with differentiation. Our evidence offers important new insights into audit market concentration and the differentiating characteristics of Big N firms.

Date Posted:Tue, 21 Sep 2021 07:37:53 -0500
Shareholder activism is now an important global phenomenon. We use a sample of nearly 7,000 activist shareholder campaigns across 56 countries to address two principal research questions related to the rise of activism. First, we develop a measure of corporate governance regulation that captures the extent to which a country鈥檚 laws facilitate minority-shareholder engagement, a necessary condition for successful intervention, and show that our measure explains cross-country variation in the emergence of activism. Second, we exploit changes in these regulations to examine how an increase in the threat of activism affects corporate outcomes, both for targeted firms and for firms not explicitly targeted by activists. Our evidence suggests that regulatory changes that facilitate investor activism result in increased profitability, higher payouts, and reduced investments. These effects are concentrated in countries where the preexisting governance regulations are weaker and the ...

Date Posted:Thu, 06 May 2021 02:59:08 -0500
We use a comprehensive sample of nearly 7,000 shareholder activism campaigns across 56 countries to examine how corporate governance regulations interact with activism to drive changes in real corporate-sector outcomes. We develop a novel country-level framework of regulatory characteristics that serve as necessary precursors for minority shareholders to influence firm governance. We find that the incidence of both foreign and domestic activism, as measured by the number of campaigns, increases by over 60% (95%) following reforms that increase shareholder voting rights (board independence). Using these shareholder-empowering changes to governance regulation as shocks to the threat of activism, and the presence of independent institutional investors to identify high-activism-risk firms, we find that firms facing a high threat of activism (including non-targeted firms) increase profitability, reduce investment, and increase payouts. These effects are concentrated in countries where the ...

Date Posted:Tue, 29 Dec 2020 15:56:07 -0600
We analyze nearly 7,000 shareholder activist campaigns across 56 countries and show that shareholder activism is now a global phenomenon. Our analyses provide evidence on factors that explain the spread of activism and two related questions. First, we measure the extent to which country-level governance regulations facilitate shareholder engagement, a necessary condition for activism, and show that our measure of shareholder-empowering governance regulation explains cross-country variation in the emergence of activism. Second, we show that changes in these regulations also affect outcomes for firms that face a high threat of activism but that are not targeted by activists (i.e., there are spillovers)?including increased profitability, higher payouts, and reduced investment. These effects are most pronounced in countries with weak minority shareholder rights, where activism had previously been relatively unimportant.

Date Posted:Tue, 29 Dec 2020 05:59:02 -0600
We use a comprehensive sample of over 7,000 shareholder activism campaigns across 55 countries to examine how corporate governance regulations interact with activism to drive meaningful change in real corporate sector outcomes. We develop a country-level framework of regulatory characteristics that serve as necessary precursors for minority shareholders to influence firm governance, and find that the incidence of both foreign and domestic activism in a given country, as measured by the number of campaigns, increases by more than 80% following reforms that increase shareholder voting rights and board independence. Using these shareholder-empowering changes to governance regulation as shocks that increase the threat of activism, and the presence of independent institutional investors to identify high-activism-risk firms, we find that firms facing a high threat of activism reduce investment and increase payouts. We also find similar effects for firms not directly targeted by activists, ...

Date Posted:Wed, 30 Sep 2020 20:23:01 -0500
We provide new evidence on the role of management guidance in explaining earnings announcement-period returns. We show that guidance practices changed around the financial crisis in ways likely to affect the information content of guidance bundled with earnings. Managers provide guidance for a number of metrics and have moved towards annual and away from quarterly guidance, perhaps because of concerns about the managerial ?myopia? some associate with quarterly EPS guidance. EPS and/or sales guidance news is incrementally informative and explains returns to about the same extent as earnings news, more so when earnings disappoint or firms report large beats. Specifications that capture the sign and consistency of signals are about as informative as those that use magnitudes. Similar to previous evidence, the response is asymmetric, with a stronger response to adverse earnings news accompanied by downgrades.

Date Posted:Wed, 30 Sep 2020 11:24:51 -0500
We provide new evidence on the role of management guidance in explaining earnings announcement-period returns. We show that guidance practices changed around the financial crisis in ways likely to affect the information content of guidance bundled with earnings. Managers provide guidance for a number of metrics and have moved towards annual and away from quarterly guidance, perhaps because of concerns about the managerial 鈥渕yopia鈥� some associate with quarterly EPS guidance. EPS and/or sales guidance news is incrementally informative and explains returns to about the same extent as earnings news, more so when earnings disappoint or firms report large beats. Specifications that capture the sign and consistency of signals are about as informative as those that use magnitudes. Similar to previous evidence, the response is asymmetric, with a stronger response to adverse earnings news accompanied by downgrades.

Date Posted:Mon, 31 Aug 2020 08:56:23 -0500
We use a long time-series from Australia to investigate the determinants and (to a lesser extent) consequences of audit market concentration. We show that increasing skewness in the size of public companies is associated with increased audit market concentration, and that the growth of the large audit firms is largely due increases in the size of a small number of their public company clients rather than to mergers and acquisitions. Our evidence also shows that a simple growth/economies of scale argument cannot fully explain market concentration: median audit firm size, a common measure of minimum efficient scale, is flat to declining as the size of the market increases. The emergence of the Big N is also associated with a number of differences (relative to non-Big N firms) that occur around the time the profession first allowed audit firms to advertise and promote their services. These differences include increases in staff-to-partner ratios, lower ratios of audit fees to client ...

Date Posted:Mon, 29 Oct 2018 06:49:01 -0500
We use a long time series from Australia to investigate the determinants and consequences of audit market concentration. The time series begins when the market is still fragmented and extends through recent years, by which time the Big 4 is dominant. We show that increasing skewness in the size of public companies is associated with increased concentration of the audit market. We also show that the emergence of the Big N is associated with the growth in non-audit services, and provide evidence of increasing returns to scale in auditing that become more pronounced over time. The results suggest that the primary driver of concentration is the growth of the largest public companies and the associated need for audit firm scale. The rate of audit switching and the extent of fee discounting increase over time, which provides some assurance that the audit market remains competitive in spite of greater concentration.

Date Posted:Sun, 03 Dec 2017 00:26:27 -0600
We use a long time series of audit market data from Australia to investigate the causes and consequences of audit market concentration. The time series begins when this market is still fragmented and extends through the emergence of market concentration and the Big N. We show that audit market concentration is associated with increasing skewness in the size of public companies and that the minimum efficient scale (MES) of audit firms increases over time, consistent with the importance of scale in auditing. Our evidence suggests that the changing economics of the audit process, including product differentiation by the Big N, is related to changes in the size of public companies, and likely helps explain increased concentration. We are unable to find evidence that increased concentration makes the audit market less competitive.

Date Posted:Thu, 14 Sep 2017 20:47:36 -0500
We describe the process through which the Securities and Exchange Commission (SEC) makes filings ?publicly available.? For a sample of Form 4 (insider trade) filings, we show that, during the period we examine, the majority of filings are available to paying subscribers of the SEC's public dissemination system (PDS) feed before they are posted to the EDGAR website, and so provide subscribers and their clients with a private advantage. We show that this advantage translates into an economically significant trading advantage, and prices, volumes, and spreads respond to the news contained in filings beginning around 30 seconds before public posting. These findings indicate that the SEC dissemination process does not always provide a level playing field and that the meaning of publicly available information in capital markets is no longer simple or obvious. In response to our study, the SEC launched an investigation and agreed to eliminate the PDS timing advantage.

Date Posted:Thu, 14 Sep 2017 11:47:36 -0500
We describe the process through which the Securities and Exchange Commission (SEC) makes filings 鈥減ublicly available.鈥� For a sample of Form 4 (insider trade) filings, we show that, during the period we examine, the majority of filings are available to paying subscribers of the SEC's public dissemination system (PDS) feed before they are posted to the EDGAR website, and so provide subscribers and their clients with a private advantage. We show that this advantage translates into an economically significant trading advantage, and prices, volumes, and spreads respond to the news contained in filings beginning around 30 seconds before public posting. These findings indicate that the SEC dissemination process does not always provide a level playing field and that the meaning of publicly available information in capital markets is no longer simple or obvious. In response to our study, the SEC launched an investigation and agreed to eliminate the PDS timing advantage.

Date Posted:Thu, 16 Feb 2017 23:00:44 -0600
We describe the process the SEC uses to make filings 鈥減ublicly available.鈥� For a sample of Form 4 (insider trade) filings, we show that, during the period we examine, the majority of filings are available to paying subscribers of the SEC鈥檚 PDS feed before they are posted to the SEC website, and so provide subscribers and their clients with a private advantage. We show that this advantage translates into an economically significant trading advantage, and that prices, volumes, and spreads respond to the news contained in filings beginning around 30 seconds before public posting. These findings indicate that the SEC dissemination process does not always provide a level playing field and that the meaning of publicly-available information in capital markets is no longer simple or obvious. In response to our study, the SEC launched an investigation and agreed to eliminate the PDS timing advantage.

Date Posted:Thu, 02 Feb 2017 02:42:26 -0600
We describe the process the SEC uses to make filings 鈥減ublicly available.鈥� For a sample of Form 4 (insider trade) filings, we show that, during the period we examine, the majority of filings are available to paying subscribers of the SEC鈥檚 PDS feed before they are posted to the SEC website, and so provide subscribers and their clients with a private advantage. We show that this advantage translates into an economically significant trading advantage, and that prices, volumes, and spreads respond to the news contained in filings beginning around 30 seconds before public posting. These findings indicate that the SEC dissemination process does not always provide a level playing field and that the meaning of publicly-available information in capital markets is no longer simple or obvious. In response to our study, the SEC launched an investigation and agreed to eliminate the PDS timing advantage.

Date Posted:Sat, 30 Apr 2016 04:18:56 -0500
We investigate whether Japan鈥檚 much touted governance reforms improve its firms鈥� management of cash, economic performance, and valuation. Consistent with an improvement in governance since 2000, Japanese firms hold less cash and increase payouts to shareholders. Improvements in performance are associated with reductions in (excess) cash, reductions in the influence of the banks that traditionally sit at the center of horizontal keiretsu, and increases in the holdings of management and foreign investors. The market valuation of Japanese firms鈥� cash holdings was lower than for US firms during the 1990s but increases to levels closer to those of US firms in the 2000s. Collectively, the evidence suggests that performance improves in those Japanese companies that reform their governance practices. These findings have implications for other Asian economies, such as China, India, and Korea, where there are ongoing discussions of whether improved governance can increase firm performance and ...

Date Posted:Thu, 28 Apr 2016 07:26:41 -0500
We describe the process through which the SEC makes the information in its filings 鈥減ublicly available,鈥� a critical element of event studies. For a sample of Form 4 (insider trade) filings, we show that the majority of filings are available to paying subscribers of the SEC鈥檚 PDS feed before they are posted to the SEC website, and so provide subscribers and their clients with a private advantage. We show that this advantage translates into an economically significant trading advantage, and that prices, volumes, and spreads respond to the news contained in filings beginning around 30 seconds before public posting. Our findings indicate that the SEC dissemination process is not a level playing field and that the meaning of publicly-available information in capital markets is no longer simple or obvious.

Date Posted:Tue, 01 Mar 2016 04:27:43 -0600
We use the process through which insider trading (SEC Form 4) filings are made public to investigate whether media coverage affects the way securities markets assimilate news. To do this, we utilize recent changes in disclosure rules governing insider trades as well as the initiation of coverage by Dow Jones to cleanly identify media effects. Using high-resolution intraday data, we find clear effects of media dissemination on the way prices and volume respond to insider trading news in the minutes after its release. These results help to resolve open questions regarding the role of the media in capital markets, including why apparently 鈥渟econd hand鈥� news affects securities prices.

Date Posted:Wed, 20 Jan 2016 11:57:43 -0600
We use longitudinal data from the Australian audit market to shed light on the determinants of audit market structure. Our data span nearly 50 years, and begin before the audit market becomes concentrated. Over this period, the size distribution of public companies becomes increasingly dominated by a small number of large, complex entities. We argue that this necessitated investments by audit firms in exogenous and endogenous sunk costs (Sutton, 1991), which led to the emergence of a small set of increasingly dominant audit firms and a dual structure in the industry. Although our evidence is mostly descriptive, we find support for these ideas, along with the related possibility that these firms鈥� links to Big N firms in other countries also helps explain the emergence of the Big N. The results have implications for the current regulatory debate on audit market concentration and the role of the Big 4.

Date Posted:Fri, 18 Dec 2015 01:28:06 -0600
We describe the process through which the SEC disseminates insider trading filings. In the majority of cases, filings are available to paying subscribers of the EDGAR PDS feed before they are posted to the SEC website (i.e., subscribers and their clients have a private advantage). For these filings, prices, volumes, and spreads respond to the news beginning around 30 seconds before public posting. For filings with trading in the private advantage window, traders relying on public information miss out on approximately one-third of the filing day return. Of the average 101 bps accruing between when a Form 4 is accepted by the SEC and the close of the market that day, approximately 30 bps occur between the first trade around the PDS feed and the first trade following the public SEC posting. Our findings have already led politicians on Capitol Hill to call for the SEC to change its dissemination process and the SEC announced that it has modified the EDGAR dissemination system to address ...

Date Posted:Tue, 24 Nov 2015 03:01:25 -0600
We compare the payout policies of US industrials and banks over the past 30 years to better understand dividends, especially for banks. For industrials, dividends grow strongly after 2002, when the declining propensity to pay reverses. Banks have a higher and more stable propensity to pay dividends and resist cutting dividends as the 2007-08 financial crisis begins. Before the crisis, increases in repurchases push payouts to historic levels. These findings are broadly consistent with the idea that banks use dividends to signal financial strength, while agency costs of free cash flow better explain industrial payouts..

Date Posted:Tue, 24 Nov 2015 02:57:51 -0600
We use the process through which insider trading (SEC Form 4) filings are made public to investigate whether media coverage affects the way securities markets assimilate news. To do this, we utilize recent changes in disclosure rules governing insider trades as well as the initiation of coverage by Dow Jones to cleanly identify media effects. Using high-resolution intraday data, we find clear effects of media dissemination on the way prices and volume respond to insider trading news in the minutes after its release. These results help to resolve open questions regarding the role of the media in capital markets, including why apparently 鈥渟econd hand鈥� news affects securities prices.

Date Posted:Sat, 18 Apr 2015 07:47:56 -0500
We compare the payout policies of US industrials and banks over the past 30 years to better understand dividends, especially for banks. For industrials, the declining propensity to pay reverses after 2002, after which dividends grow strongly. Banks have a higher and more stable propensity to pay dividends and resist cutting dividends as the crisis begins. Before the crisis, increases in repurchases push total payouts to historic levels. These findings are broadly consistent with the idea that banks use dividends to signal financial strength while agency costs of free cash flow better explain industrial payouts.

Date Posted:Fri, 10 Apr 2015 01:24:13 -0500
We use the disclosure of insiders鈥� trades to investigate whether the manner in which news is disseminated by the media affects the way securities markets respond to news. To do this, we utilize recent changes in disclosure rules governing insider trades to cleanly identify media effects. Using high-resolution intraday data, we find clear effects of media disclosure on the way prices and volume respond to news. These results help to resolve open questions regarding the importance of investor inattention and why apparently 鈥渟econd hand鈥� news affects securities prices.

Date Posted:Fri, 20 Mar 2015 01:11:08 -0500
We detail the process through which the SEC disseminates insider trading filings. In the majority of cases, filings are available to private subscribers before they are posted to the SEC website. For these filings, prices, volumes, and spreads respond to the news beginning around 30 seconds before public posting. Of the 2.92% return associated with insider purchases, 1.01% accrues before the news is posted to the SEC site, and 0.42% accrues before EDGAR accepts the filing. These results raise questions about whether the EDGAR dissemination process is a level playing field for all investors.

Date Posted:Sun, 08 Feb 2015 08:28:13 -0600
Recent changes in technology and the media are causing significant changes in how capital markets assimilate and respond to information. We identify important themes in the disclosure literature and use this as a framework to discuss the conference papers that appear in this volume. These papers examine how managers? disclosure practices are being affected by changes in technology, the media, and capital markets. While this work makes important progress, we discuss how continuing technological change and the emergence of new forms of media offer further opportunities for research on the role of disclosure in capital markets.

Date Posted:Sat, 07 Feb 2015 22:28:14 -0600
Recent changes in technology and the media are causing significant changes in how capital markets assimilate and respond to information. We identify important themes in the disclosure literature and use this as a framework to discuss the conference papers that appear in this volume. These papers examine how managers鈥� disclosure practices are being affected by changes in technology, the media, and capital markets. While this work makes important progress, we discuss how continuing technological change and the emergence of new forms of media offer further opportunities for research on the role of disclosure in capital markets.

Date Posted:Thu, 30 Oct 2014 01:01:39 -0500
We use a large recent sample of Form 4 insider trading filings to provide evidence on the process through which SEC filings are disseminated via EDGAR. We find that while the delay from a filing鈥檚 acceptance by EDGAR to its initial public availability on the SEC website is relatively short, with a mean (median) posting time of 40 (36) seconds, in the majority of cases the filing is available to Tier 1 subscribers before its availability on the public SEC site. We further show that prices, volumes, and spreads respond to the filing news beginning around 30 seconds before public posting, consistent with some market participants taking advantage of the posting delay. These results raise questions about whether the SEC dissemination process is really a level playing field for all investors.

Date Posted:Tue, 28 Oct 2014 01:01:21 -0500
We use a large recent sample of Form 4 insider trading filings to provide evidence on the process through which SEC filings are disseminated via EDGAR. We find that while the delay from a filing鈥檚 acceptance by EDGAR to its initial public availability on the SEC website is relatively short, with a mean (median) posting time of 40 (36) seconds, in the majority of cases the filing is available to Tier 1 subscribers before its availability on the public SEC site. We further show that prices, volumes, and spreads respond to the filing news beginning around 30 seconds before public posting, consistent with some market participants taking advantage of the posting delay. These results raise questions about whether the SEC dissemination process is really a level playing field for all investors.

Date Posted:Fri, 24 Oct 2014 15:15:01 -0500
We investigate whether Japan鈥檚 corporate governance reforms improve economic performance and valuation. Consistent with an improvement in governance since 2000, Japanese firms hold less cash and increase payouts to shareholders. Improvements in performance are associated with reductions in (excess) cash, reductions in the influence of the banks that traditionally sit at the center of horizontal keiretsu, and increases in the holdings of management and foreign investors. The market valuation of Japanese firms鈥� cash holdings was lower than for US firms during the 1990s but increases to levels closer to those of US firms in the 2000s. Collectively, the evidence suggests that performance improves in those Japanese companies that reform their governance practices. These findings have implications for other Asian economies, such as China, India, and Korea, where there are ongoing discussions of how improved governance can increase firm performance and valuation.

Date Posted:Fri, 24 Oct 2014 15:07:24 -0500
We use a large recent sample of Form 4 insider trading filings to provide evidence on the process through which SEC filings are disseminated via EDGAR. We find that while the delay from a filing鈥檚 acceptance by EDGAR to its initial public availability on the SEC website is relatively short, with a mean (median) posting time of 40 (36) seconds, in the majority of cases the filing is available to Tier 1 subscribers before its availability on the public SEC site. We further show that prices, volumes, and spreads respond to the filing news beginning around 30 seconds before public posting, consistent with some market participants taking advantage of the posting delay. These results raise questions about whether the SEC dissemination process is really a level playing field for all investors.

Date Posted:Fri, 24 Oct 2014 10:11:56 -0500
We describe the process the SEC uses to make filings ?publicly available.? For a sample of Form 4 (insider trade) filings, we show that, during the period we examine, the majority of filings are available to paying subscribers of the SEC?s PDS feed before they are posted to the SEC website, and so provide subscribers and their clients with a private advantage. We show that this advantage translates into an economically significant trading advantage, and that prices, volumes, and spreads respond to the news contained in filings beginning around 30 seconds before public posting. These findings indicate that the SEC dissemination process does not always provide a level playing field and that the meaning of publicly-available information in capital markets is no longer simple or obvious. In response to our study, the SEC launched an investigation and agreed to eliminate the PDS timing advantage.

Date Posted:Fri, 24 Oct 2014 01:11:57 -0500
We use a large recent sample of Form 4 insider trading filings to provide evidence on the process through which SEC filings are disseminated via EDGAR. We find that while the delay from a filing鈥檚 acceptance by EDGAR to its initial public availability on the SEC website is relatively short, with a mean (median) posting time of 40 (36) seconds, in the majority of cases the filing is available to Tier 1 subscribers before its availability on the public SEC site. We further show that prices, volumes, and spreads respond to the filing news beginning around 30 seconds before public posting, consistent with some market participants taking advantage of the posting delay. These results raise questions about whether the SEC dissemination process is really a level playing field for all investors.

Date Posted:Wed, 24 Sep 2014 23:18:58 -0500
We compare the payout policies of US industrials and banks over the past 30 years, including through the financial crisis, to better understand dividends, especially for banks. For industrials, the declining propensity to pay (Fama and French, 2001) largely reverses after 2002 and is accompanied by a strong increase in aggregate dividends. Financials, especially banks, have a higher and more stable propensity to pay dividends. Large banks resist cutting dividends as the crisis begins but then cut dividends aggressively while industrial dividends are largely unaffected. Before the crisis, repurchases increase strongly for both sets of firms, pushing total payouts to historic levels, but are quickly reduced at the onset of the crisis. Collectively, the evidence suggests that banks use dividends to signal financial strength while the agency costs of free cash flow is the dominant explanation for industrial payouts.

Date Posted:Fri, 25 Jul 2014 05:35:01 -0500
We compare the payout policies of US industrials and banks over the past 30 years, including through the financial crisis, to better understand dividends, especially for banks. For industrials, the declining propensity to pay (Fama and French, 2001) largely reverses after 2002 and is accompanied by a strong increase in aggregate dividends. Financials, especially banks, have a higher and more stable propensity to pay dividends. Large banks resist cutting dividends as the crisis begins but then cut dividends aggressively while industrial dividends are largely unaffected. Before the crisis, repurchases increase strongly for both sets of firms, pushing total payouts to historic levels, but are quickly reduced at the onset of the crisis. Collectively, the evidence suggests that banks use dividends to signal financial strength while the agency costs of free cash flow is the dominant explanation for industrial payouts.

Date Posted:Fri, 02 May 2014 12:47:53 -0500
We use a large panel of Australian audit market data to shed light on the determinants of audit market structure. The panel spans nearly 50 years, and begins before the emergence of the Big 4 in Australia. Over this period, the size distribution of companies becomes increasingly dominated by a small number of large, complex entities. We argue that this caused a structural shift in the demand for audit services and necessitated investments by auditors in endogenous sunk costs (Sutton, 1991), which led to the emergence of a small set of increasingly dominant audit firms. We provide evidence consistent with these ideas. The results have implications for the current regulatory debate on audit market concentration and the role of the Big 4.

Date Posted:Fri, 02 May 2014 12:42:04 -0500
We investigate whether Japan鈥檚 corporate governance reforms improve economic performance and valuation. Consistent with an overall improvement in governance since 2000, Japanese firms hold less cash and increase payouts to shareholders. However, Japanese firms still hold more cash than US firms, even when we account for the large increase in US firms鈥� holdings of cash and marketable securities. In cross section, reductions in (excess) cash and increases in payouts (especially dividends) are associated with improvements in performance. These changes are also related to declines in the influence of the banks (which traditionally sit at the center of Japanese horizontal keiretsu) and with increases in the influence of foreign investors. The market valuation of Japanese firms鈥� cash holdings was lower than that of US firms during the 1990s but has now increased to levels closer to those of US firms. Collectively, the evidence suggests that performance improves in those Japanese ...

Date Posted:Fri, 02 May 2014 00:00:00 -0500

We use a long time-series from Australia to shed light on economic factors that led to audit market concentration and the emergence of the Big N. We show that increases in the size of a relatively small number of public company clients (increased concentration in the corporate sector) was an important factor that led to large audit firms and audit market concentration. Related, we show that Big N firms made sunk cost investments that allowed them to differentiate their services, including by investing in the ability to offer expertise (such as industry specialization) and non-audit services, which allowed them to retain clients and grow as their clients became larger and more complex. These changes occurred around the time the profession lifted restrictions on advertising and promotion, which facilitated audit switching and allowed larger, more complex clients to switch to emerging Big N firms while smaller, less complex clients switched to non-Big N firms. We do not find evidence that audit market concentration led to reduced competition; instead, our results suggest the audit market became more competitive over time as concentration increased. 

Date Posted:Mon, 16 Dec 2013 08:54:15 -0600
We provide an overview of the empirical literature on the politics of accounting standard-setting, focusing on the US Financial Accounting Standards Board (FASB). Although it is clear from casual observation that politics sometimes plays a first-order role in the determination of accounting standards, we argue that more can be done to improve our understanding of this important topic. Based on our review, we outline what we see to be a number of potentially fruitful directions for future research.

Date Posted:Sun, 15 Dec 2013 22:54:15 -0600
We provide an overview of the empirical literature on the politics of accounting standard-setting, focusing on the US Financial Accounting Standards Board (FASB). Although it is clear from casual observation that politics sometimes plays a first-order role in the determination of accounting standards, we argue that more can be done to improve our understanding of this important topic. Based on our review, we outline what we see to be a number of potentially fruitful directions for future research.

Date Posted:Fri, 13 Dec 2013 01:21:08 -0600
We provide an overview of the empirical literature on the politics of accounting standard-setting, focusing on the US Financial Accounting Standards Board (FASB). Although it is clear from casual observation that politics sometimes plays a first-order role in the determination of accounting standards, we argue that more can be done to improve our understanding of this important topic. Based on our review, we outline what we see to be a number of potentially fruitful directions for future research.

Date Posted:Wed, 11 Dec 2013 05:42:27 -0600
We provide an overview of the empirical literature on the politics of accounting standard-setting, focusing on the US Financial Accounting Standards Board (FASB). Although it is clear from casual observation that politics sometimes plays a first-order role in the determination of accounting standards, we argue that more can be done to improve our understanding of this important topic. Based on our review, we outline what we see to be a number of potentially fruitful directions for future research.

Date Posted:Sat, 19 Oct 2013 22:47:07 -0500
We provide an overview of the empirical literature on the politics of accounting standard setting, focusing on the U.S. Financial Accounting Standards Board (FASB). Although it is clear from casual observation that politics sometimes plays a first-order role in the determination of accounting standards, we argue that more can be done to improve our understanding of this important topic. Based on our review, we outline what we see to be a number of potentially fruitful directions for future research.

Date Posted:Sat, 19 Oct 2013 17:54:59 -0500
Dichev, Graham, Harvey and Rajgopal (DGHR 2013) survey CFOs to elicit their views on earnings quality, broader trends in financial reporting, and the prevalence of earnings management. They provide some interesting insights on these issues. We discuss how CFOs? incentives in the financial reporting process are likely to affect what we can learn from them about earnings quality. We also discuss how DGHR?s methodological choices regarding survey sample and question design affect their inferences, including what we can infer about the prevalence and magnitude of earnings management.

Date Posted:Sat, 19 Oct 2013 16:33:39 -0500
We provide an overview of the empirical literature on the politics of accounting standard setting, focusing on the U.S. Financial Accounting Standards Board (FASB). Although it is clear from casual observation that politics sometimes plays a first-order role in the determination of accounting standards, we argue that more can be done to improve our understanding of this important topic. Based on our review, we outline what we see to be a number of potentially fruitful directions for future research.

Date Posted:Sat, 19 Oct 2013 08:55:01 -0500
Dichev, Graham, Harvey and Rajgopal (DGHR 2013) survey CFOs to elicit their views on earnings quality, broader trends in financial reporting, and the prevalence of earnings management. They provide some interesting insights on these issues. We discuss how CFOs鈥� incentives in the financial reporting process are likely to affect what we can learn from them about earnings quality. We also discuss how DGHR鈥檚 methodological choices regarding survey sample and question design affect their inferences, including what we can infer about the prevalence and magnitude of earnings management.

Date Posted:Sat, 19 Oct 2013 07:33:40 -0500
We provide an overview of the empirical literature on the politics of accounting standard setting, focusing on the U.S. Financial Accounting Standards Board (FASB). Although it is clear from casual observation that politics sometimes plays a first-order role in the determination of accounting standards, we argue that more can be done to improve our understanding of this important topic. Based on our review, we outline what we see to be a number of potentially fruitful directions for future research.

Date Posted:Wed, 27 Mar 2013 07:56:25 -0500
We provide evidence on the payouts of US firms over the past 30 years. Any evidence that dividends are disappearing has reversed course, with dividends increasing robustly over the last ten years, reviving the dividend puzzle. For industrials, dividends grow in aggregate, are increasingly smooth, and are concentrated among a relatively small group of large mature firms, consistent with a free cash flow explanation. In contrast, the majority of financials pay dividends, which increase robustly ...

Date Posted:Tue, 19 Mar 2013 10:32:38 -0500
We use the process through which insider trading (SEC Form 4) filings are made public to investigate whether media coverage affects the way securities markets assimilate news. To do this, we utilize recent changes in disclosure rules governing insider trades as well as the initiation of coverage by Dow Jones to cleanly identify media effects. Using high-resolution intraday data, we find clear effects of media dissemination on the way prices and volume respond to insider trading news in the minutes after its release. These results help to resolve open questions regarding the role of the media in capital markets, including why apparently ?second hand? news affects securities prices.

Date Posted:Tue, 19 Mar 2013 05:32:39 -0500
We use the disclosure of insiders鈥� trades to investigate whether the way in which news is disseminated by the media affects the market response. To do this, we use recent changes in the disclosure rules governing insider trades and an exogenous change in media coverage to cleanly identify media effects. Using high-resolution intraday data and a plausibly exogenous change in media coverage, we find clear media effects in the price and volume response to news. These results help resolve open ...

Date Posted:Mon, 18 Feb 2013 02:18:44 -0600
We test whether reforms in Japanese corporate governance have been effective. Specifically, we investigate whether Japanese firms improve their management of cash and whether such changes translate into improved performance. Consistent with improved governance for some Japanese firms since the late 1990s, we find that, on average, the (excess) cash holdings of Japanese firms decline; that cash holdings are now more sensitive to their hypothesized economic determinants; and that there is a ...

Date Posted:Mon, 24 Dec 2012 03:52:05 -0600
Over the past 30 years, there have been significant changes in the distribution of earnings 鈥� cross-sectional variation has increased, with increasing left skewness鈥攁s well as in corporate payout policy, with many fewer firms paying dividends and the emergence of stock repurchases. We investigate whether the informativeness of payout policy with respect to earnings quality changes over this period. We find that the reported earnings of dividend-paying firms are more persistent than those ...

Date Posted:Sat, 08 Sep 2012 16:45:21 -0500
Changes in bid-ask spreads are small around earnings announcements in general. However, there is evidence of a temporary increase in bid-ask spreads at the time earnings are announced for announcements that convey the most information, especially for announcements that are late and convey bad news. Good news releases (particularly when they occur earlier than expected) are associated with a larger trading volume reaction than bad news releases, which helps to explain the differential spread ...

Date Posted:Sat, 08 Sep 2012 00:00:00 -0500
Changes in bid-ask spreads are small around earnings announcements in general. However, there is evidence of a temporary increase in bid-ask spreads at the time earnings are announced for announcements that convey the most information, especially for announcements that are late and convey bad news. Good news releases (particularly when they occur earlier than expected) are associated with a larger trading volume reaction than bad news releases, which helps to explain the differential spread effects. Overall, the evidence indicates that those announcements that generate the most ex-post uncertainty among investors are associated with the largest spread effects.

Date Posted:Sun, 29 Jul 2012 16:03:29 -0500
We study events surrounding ChuoAoyama鈥檚 failed audit of Kanebo, a large Japanese cosmetics company whose management engaged in a massive accounting fraud. ChuoAoyama was PwC鈥檚 Japanese affiliate and one of Japan鈥檚 largest audit firms. In May 2006, the Japanese Financial Services Agency (FSA) suspended ChuoAoyama for two months for its role in the Kanebo fraud. This unprecedented action followed a series of events that seriously damaged ChuoAoyama鈥檚 reputation. We use these events to ...

Date Posted:Sun, 29 Jul 2012 00:00:00 -0500
We study events surrounding ChuoAoyama?s failed audit of Kanebo, a large Japanese cosmetics company whose management engaged in a massive accounting fraud. ChuoAoyama was PwC?s Japanese affiliate and one of Japan?s largest audit firms. In May 2006, the Japanese Financial Services Agency (FSA) suspended ChuoAoyama for two months for its role in the Kanebo fraud. This unprecedented action followed a series of events that seriously damaged ChuoAoyama?s reputation. We use these events to provide evidence on the importance of auditors? reputation for quality in a setting where litigation plays essentially no role. Around one quarter of ChuoAoyama?s clients defected from the firm after its suspension, consistent with the importance of reputation. Larger firms and those with greater growth options were more likely to leave, also consistent with the reputation argument.

Date Posted:Sat, 28 Jul 2012 02:36:12 -0500
We study events surrounding ChuoAoyama鈥檚 failed audit of Kanebo, a large Japanese cosmetics company whose management engaged in a massive accounting fraud. ChuoAoyama was PwC鈥檚 Japanese affiliate and one of Japan鈥檚 鈥淏ig Four鈥� audit firms. In May 2006, the Japanese Financial Services Agency (FSA) suspended ChuoAoyama for two months as punishment for its role in the accounting fraud at Kanebo. This action was unprecedented, and followed a sequence of events that seriously damaged ...

Date Posted:Wed, 11 Jan 2012 00:32:31 -0600
We study events surrounding ChuoAoyama鈥檚 failed audit of Kanebo, a large Japanese cosmetics company whose management engaged in a massive accounting fraud. ChuoAoyama was PwC鈥檚 Japanese affiliate and one of Japan鈥檚 鈥淏ig Four鈥� audit firms. In May 2006, the Japanese Financial Services Agency (FSA) suspended ChuoAoyama for two months as punishment for its role in the accounting fraud at Kanebo. This action was unprecedented, and followed a sequence of events that seriously damaged ChuoAoyama鈥檚 ...

Date Posted:Thu, 05 Jan 2012 00:00:00 -0600
We compare the payout policies of US industrials and banks over the past 30 years to better understand dividends, especially for banks. For industrials, dividends grow strongly after 2002, when the declining propensity to pay reverses. Banks have a higher and more stable propensity to pay dividends and resist cutting dividends as the 2007-08 financial crisis begins. Before the crisis, increases in repurchases push payouts to historic levels. These findings are broadly consistent with the idea that banks use dividends to signal financial strength, while agency costs of free cash flow better explain industrial payouts.

Date Posted:Wed, 04 Jan 2012 19:04:22 -0600
We provide evidence on the payout policy of US industrial and financial firms over the past 30 years, including through the recent financial crisis. Although previous evidence (Fama and French, 2001) shows that dividends appear to be in decline, we show that dividends have bounced back robustly over the last eight years, and cast doubt on the idea that this is due to the more favorable treatment of dividends under the 2003 Tax Relief Act. We report a strong increase in payouts for both ...

Date Posted:Sat, 12 Nov 2011 02:13:29 -0600
Demerjian (2011) argues that a shift by U.S. standard setters towards the balance sheet approach reduces the usefulness of balance sheet numbers for contracting. Consistent with this argument, he provides evidence of a decline in the use of balance sheet-based covenants in debt contracts, a useful finding. Nevertheless, I argue that the evolution of standard-setting is more complex than this argument implies, and evaluate the economic basis of Demerjian鈥檚 arguments for how debt contracts ...

Date Posted:Sat, 12 Nov 2011 01:52:23 -0600
Over the past ten years there has been much discussion about whether corporate governance in Japan has improved and, if so, whether this has translated into improved corporate performance. We investigate whether observed changes in Japanese firms鈥� cash holdings and payout policy are consistent with improved governance practices. To do this, we benchmark Japanese firms against U.S. firms. We find mixed evidence on whether Japanese governance has improved overall, in that the cash holdings of ...

Date Posted:Sat, 12 Nov 2011 00:00:00 -0600
We investigate whether Japan?s much touted governance reforms improve its firms? management of cash, economic performance, and valuation. Consistent with an improvement in governance since 2000, Japanese firms hold less cash and increase payouts to shareholders. Improvements in performance are associated with reductions in (excess) cash, reductions in the influence of the banks that traditionally sit at the center of horizontal keiretsu, and increases in the holdings of management and foreign investors. The market valuation of Japanese firms? cash holdings was lower than for US firms during the 1990s but increases to levels closer to those of US firms in the 2000s. Collectively, the evidence suggests that performance improves in those Japanese companies that reform their governance practices. These findings have implications for other Asian economies, such as China, India, and Korea, where there are ongoing discussions of whether improved governance can increase firm performance and valuation.

Date Posted:Sat, 12 Nov 2011 00:00:00 -0600
Demerjian (2011) argues that a shift by U.S. standard setters towards the balance sheet approach reduces the usefulness of balance sheet numbers for contracting. Consistent with this argument, he provides evidence of a decline in the use of balance sheet-based covenants in debt contracts, a useful finding. Nevertheless, I argue that the evolution of standard-setting is more complex than this argument implies, and evaluate the economic basis of Demerjian?s arguments for how debt contracts respond to changes in accounting rules. One conclusion that emerges is that there are still some important open issues regarding the economic determinants of debt contracts.

Date Posted:Wed, 12 Oct 2011 08:05:00 -0500
Extant research commonly uses indicator variables for industry membership to proxy for securities litigation risk. We provide evidence on the construct validity of this measure by reporting on the predictive ability of alternative models of litigation risk. While the industry measure alone does a relatively poor job of predicting litigation, supplementing this variable with measures of firm characteristics (such as size, growth, and stock volatility) considerably improves predictive ability ...

Date Posted:Wed, 14 Sep 2011 12:14:14 -0500
We study the effect of disclosure on uncertainty by examining how management earnings forecasts affect stock market volatility. Using implied volatilities from exchange-traded options prices, we find that management earnings forecasts, on average, increase short-term volatility. This effect is attributable to forecasts that convey bad news, especially when firms release forecasts sporadically (as opposed to on a routine basis). In the longer run, market uncertainty declines after earnings ...

Date Posted:Thu, 08 Sep 2011 04:34:53 -0500
In this commentary I offer some thoughts on the possibilities for accounting research that uses the Japanese setting. I argue that the uniqueness of the Japanese setting offers many opportunities for researchers, and hope that we can encourage more researchers to take advantage of this setting to advance the literature on financial reporting and disclosure.

Date Posted:Thu, 08 Sep 2011 00:00:00 -0500
In this commentary I offer some thoughts on the possibilities for accounting research that uses the Japanese setting. I argue that the uniqueness of the Japanese setting offers many opportunities for researchers, and hope that we can encourage more researchers to take advantage of this setting to advance the literature on financial reporting and disclosure.

Date Posted:Thu, 25 Aug 2011 15:43:08 -0500
We study events surrounding ChuoAoyama鈥檚 failed audit of Kanebo, a large Japanese cosmetics company whose management engaged in a massive accounting fraud. ChuoAoyama was PwC鈥檚 Japanese affiliate and one of Japan鈥檚 鈥淏ig Four鈥� audit firms. In May 2006, the Japanese Financial Services Agency (FSA) suspended ChuoAoyama for two months as punishment for its role in the accounting fraud at Kanebo. This action was unprecedented, and followed a sequence of events that seriously damaged ChuoAoyama鈥檚 ...

Date Posted:Fri, 10 Jun 2011 17:25:41 -0500
Extant research commonly uses indicator variables for industry membership to proxy for securities litigation risk. We provide evidence on the construct validity of this measure by reporting on the predictive ability of alternative models of litigation risk. While the industry measure alone does a relatively poor job of predicting litigation, supplementing this variable with measures of basic firm characteristics (such as size, growth, and stock volatility) considerably improves predictive ...

Date Posted:Mon, 22 Nov 2010 17:50:53 -0600
We study events surrounding ChuoAoyama鈥檚 failed audit of Kanebo, a large Japanese cosmetics company whose management engaged in a massive accounting fraud. ChuoAoyama was PwC鈥檚 Japanese affiliate and one of Japan鈥檚 鈥淏ig Four鈥� audit firms. In May 2006, the Japanese Financial Services Agency (FSA) suspended ChuoAoyama for two months as punishment for its role in the accounting fraud at Kanebo. This action was unprecedented, and followed a sequence of events that seriously damaged ChuoAoyama鈥檚 ...

Date Posted:Thu, 16 Sep 2010 20:51:20 -0500
Based on extant literature, we review the positive theory of GAAP. The theory predicts that GAAP鈥檚 principal focus is on control (performance measurement and stewardship) and that verifiability and conservatism are critical features of a GAAP shaped by market forces. We recognize the advantage of using fair values in circumstances where these are based on observable prices in liquid secondary markets, but caution against expanding fair values to financial reporting more generally. We conclude ...

Date Posted:Wed, 01 Sep 2010 14:37:46 -0500
Previous research commonly uses an industry-based measure of securities litigation risk. Because securities litigation is likely to depend on underlying firm and industry attributes that vary through time, we predict that the conventional industry-based measure is a relatively poor measure of litigation risk. Consistent with this prediction, we find that litigation rates vary considerably across industries and over time, that litigation rates in 鈥渉igh litigation鈥� industries are not unusually ...

Date Posted:Thu, 01 Jul 2010 10:32:55 -0500
Previous research commonly uses an industry-based measure of securities litigation risk. Because securities litigation is likely to depend on underlying firm and industry attributes that vary through time, we predict that the conventional industry-based measure is a relatively poor measure of litigation risk. Consistent with this prediction, we find that litigation rates vary considerably across industries and over time, that litigation rates in 鈥渉igh litigation鈥� industries are not unusually ...

Date Posted:Thu, 01 Jul 2010 00:00:00 -0500
Extant research commonly uses indicator variables for industry membership to proxy for securities litigation risk. We provide evidence on the construct validity of this measure by reporting on the predictive ability of alternative models of litigation risk. While the industry measure alone does a relatively poor job of predicting litigation, supplementing this variable with measures of firm characteristics (such as size, growth, and stock volatility) considerably improves predictive ability. Additional variables such as those that proxy for corporate governance quality and managerial opportunism do not add much to predictive ability and so do not meet the cost-benefit test for inclusion.

Date Posted:Tue, 29 Jun 2010 18:03:12 -0500
Based on extant literature, we review the positive theory of GAAP. The theory predicts that GAAP鈥檚 principal focus is on control (performance measurement and stewardship) and that verifiability and conservatism are critical features of a GAAP shaped by market forces. We recognize the advantage of using fair values in circumstances where these are based on observable prices in liquid secondary markets, but caution against expanding fair values to financial reporting more generally. We conclude ...

Date Posted:Thu, 24 Jun 2010 15:35:45 -0500
We present a synthesis of academic research on corporate payout policy grounded in the pioneering contributions of Lintner [1956] and Miller and Modigliani [1961]. We conclude that a simple asymmetric information framework that emphasizes the need to distribute FCF and that embeds agency costs (as in Jensen [1986]) and security valuation problems (as in Myers and Majluf [1984]) does a good job explaining the main features of observed payout policies - i.e., the massive size of corporate ...

Date Posted:Thu, 24 Jun 2010 00:00:00 -0500
We present a synthesis of academic research on corporate payout policy grounded in the pioneering contributions of Lintner [1956] and Miller and Modigliani [1961]. We conclude that a simple asymmetric information framework that emphasizes the need to distribute FCF and that embeds agency costs (as in Jensen [1986]) and security valuation problems (as in Myers and Majluf [1984]) does a good job explaining the main features of observed payout policies - i.e., the massive size of corporate payouts, their timing and, to a lesser degree, their (dividend versus stock repurchase) form. We also conclude that managerial signaling motives, clientele demands, tax deferral benefits, investors? behavioral heuristics, and investor sentiment have at best minor influences on payout policy, but that behavioral biases at the managerial level (e.g., over-confidence) and the idiosyncratic preferences of controlling stockholders plausibly have a first-order impact. Contents: 1) Introduction. 2) Basic theory: The need to distribute FCF is foundational. 3) Security valuation problems, agency costs, and optimal payout policy. 4) Corporate payouts: Scale, concentration, and earnings linkage. 5) Payouts and earnings: A closer look. 6) Are dividends disappearing? 7) Why do dividends survive? 8) Signaling and the information content of dividends. 9) Behavioral influences on payout policy. 10) Clientele effects: Transaction costs, institutional ownership, and payout policy. 11) Controlling s

Date Posted:Wed, 07 Apr 2010 04:24:00 -0500
We study events surrounding ChuoAoyama鈥檚 failed audit of Kanebo, a large Japanese cosmetics company whose management engaged in a massive accounting fraud. ChuoAoyama was PwC鈥檚 Japanese affiliate and one of Japan鈥檚 鈥淏ig Four鈥� audit firms. In May 2006, the Japanese Financial Services Agency (FSA) suspended ChuoAoyama鈥檚 operations for two months as punishment for its role in the accounting fraud at Kanebo. This action was unprecedented, and followed a sequence of events that seriously ...

Date Posted:Wed, 07 Apr 2010 03:49:01 -0500
We study events surrounding ChuoAoyama鈥檚 failed audit of Kanebo, a large Japanese cosmetics company whose management engaged in a massive accounting fraud. ChuoAoyama was PwC鈥檚 Japanese affiliate and one of Japan鈥檚 鈥淏ig Four鈥� audit firms. In May 2006, the Japanese Financial Services Agency (FSA) suspended ChuoAoyama鈥檚 operations for two months as punishment for its role in the accounting fraud at Kanebo. This action was unprecedented, and followed a sequence of events that seriously damaged Chuo
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Date Posted:Wed, 10 Mar 2010 18:35:40 -0600
Based on extant literature, we review the positive theory of GAAP. The theory predicts that GAAP鈥檚 principal focus is on control (performance measurement and stewardship) and that verifiability and conservatism are critical features of a GAAP shaped by market forces. We recognize the advantage of using fair values in circumstances where these are based on observable prices in liquid secondary markets but caution against expanding fair values to financial reporting more generally. We conclude ...

Date Posted:Wed, 24 Feb 2010 18:09:44 -0600
We study events surrounding ChuoAoyama鈥檚 failed audit of Kanebo, a large Japanese cosmetics company whose management engaged in a massive accounting fraud. ChuoAoyama was PwC鈥檚 Japanese affiliate and one of Japan鈥檚 鈥淏ig Four鈥� audit firms. In May 2006, the Japanese Financial Services Agency (FSA) suspended ChuoAoyama鈥檚 operations for two months as punishment for its role in the accounting fraud at Kanebo. This action was unprecedented, and followed a sequence of events that seriously ...

Date Posted:Mon, 22 Feb 2010 15:52:01 -0600
We study events surrounding ChuoAoyama鈥檚 failed audit of Kanebo, a large Japanese cosmetics company whose management engaged in a massive accounting fraud. ChuoAoyama was PwC鈥檚 Japanese affiliate and one of Japan鈥檚 鈥淏ig Four鈥� audit firms. In May 2006, the Japanese Financial Services Agency (FSA) suspended ChuoAoyama鈥檚 operations for two months as punishment for its role in the accounting fraud at Kanebo. This action was unprecedented, and followed a sequence of events that seriously ...

Date Posted:Mon, 22 Feb 2010 00:00:00 -0600
We study events surrounding ChuoAoyama?s failed audit of Kanebo, a large Japanese cosmetics company whose management engaged in a massive accounting fraud. ChuoAoyama was PwC?s Japanese affiliate and one of Japan?s ?Big Four? audit firms. In May 2006, the Japanese Financial Services Agency (FSA) suspended ChuoAoyama for two months as punishment for its role in the accounting fraud at Kanebo. This action was unprecedented, and followed a sequence of events that seriously damaged ChuoAoyama?s reputation for audit quality. We use these events to provide evidence on the importance of auditors? reputation for audit quality in a setting where litigation plays essentially no role. Around one quarter of ChuoAoyama?s audit clients switched away from the firm as questions about its audit quality became more pronounced, consistent with the importance of auditors? reputation for delivering quality. Larger firms and those with greater growth options were more likely to leave ChuoAoyama suggesting a greater value for audit quality in these firms.

Date Posted:Tue, 22 Sep 2009 10:40:11 -0500
Based on extant literature, we articulate a positive theory of GAAP under the assumption that the objective is to facilitate the efficient allocation of capital within an economy. The theory predicts that GAAP鈥檚 principal focus, as shaped by the demand for and supply of financial information, is on the use of the income statement and balance sheet for performance measurement and control (stewardship). This is consistent with efficient contracting considerations guiding financial reporting ...

Date Posted:Tue, 08 Sep 2009 05:35:40 -0500
Over the past 30 years, there have been significant changes in the distribution of earnings鈥攃ross-sectional variation has increased, with increasing left skewness鈥攁s well as in corporate payout policy, with many fewer firms paying dividends and the emergence of stock repurchases. We investigate whether the informativeness of payout policy with respect to earnings quality changes over this period. We find that the reported earnings of dividend-paying firms are more persistent than those of ...

Date Posted:Wed, 19 Aug 2009 09:55:02 -0500
Based on extant literature, we articulate a positive theory of GAAP under the assumption that GAAP鈥檚 objective is to facilitate the efficient allocation of capital within an economy. The theory predicts that GAAP鈥檚 principal focus, as shaped by the demand for and supply of financial information, is on the use of the income statement and balance sheet for performance measurement and control (stewardship). This is consistent with efficient contracting considerations guiding financial reporting ...

Date Posted:Tue, 18 Aug 2009 07:33:43 -0500
We study the effect of disclosure on uncertainty by examining how management earnings forecasts affect stock market volatility. Using implied volatilities from exchange-traded options prices, we find that management earnings forecasts, on average, increase short-term volatility. This effect is attributable to forecasts that convey bad news, especially when firms release forecasts sporadically (as opposed to on a routine basis). In the longer run, market uncertainty declines after earnings ...

Date Posted:Wed, 15 Jul 2009 09:50:25 -0500
Based on extant literature, we articulate a positive theory of GAAP under the assumption that GAAP鈥檚 objective is to facilitate efficient capital allocation within an economy. The theory predicts that GAAP鈥檚 principal focus, as shaped by the demand for and supply of financial information, is on the use of the income statement and balance sheet for performance measurement and control (stewardship). The theory allows us to compare and contrast extant GAAP, as observed in a regulated setting, ...

Date Posted:Thu, 02 Jul 2009 10:01:42 -0500
We present a synthesis of academic research on corporate payout policy grounded in the pioneering contributions of Lintner (1956) and Miller and Modigliani (1961). We conclude that a simple asymmetric information framework that emphasizes the need to distribute FCF and that embeds agency costs (as in Jensen (1986)) and security valuation problems (as in Myers and Majluf (1984)) does a good job of explaining the main features of observed payout policies - i.e., the massive size of corporate ...

Date Posted:Tue, 09 Jun 2009 09:03:10 -0500
We develop an economic theory of GAAP under the assumption that GAAP鈥檚 objective is to facilitate efficient capital allocation within an economy. The theory predicts that GAAP as shaped by the economic forces of demand for and supply of financial information would focus on performance measurement and control through the income statement and balance sheet. In addition, the theory allows us to compare and contrast extant GAAP, as produced in a regulated setting, with a GAAP that might arise ...

Date Posted:Sun, 07 Jun 2009 20:46:37 -0500
We develop an economic theory of GAAP under the assumption that GAAP鈥檚 objective is to facilitate efficient capital allocation within an economy. The theory predicts that GAAP as shaped by the economic forces of demand for and supply of financial information would focus on performance measurement and control through the income statement and balance sheet. In addition, the theory allows us to compare and contrast extant GAAP, as produced in a regulated setting, with a GAAP that might arise ...

Date Posted:Wed, 03 Jun 2009 19:42:44 -0500
We develop an economic theory of GAAP under the assumption that GAAP鈥檚 objective is to facilitate efficient capital allocation within an economy. The theory predicts that GAAP as shaped by the economic forces of demand for and supply of financial information would focus on performance measurement and control through the income statement and balance sheet. In addition, the theory allows us to compare and contrast extant GAAP, as produced in a regulated setting, with a GAAP that might arise ...

Date Posted:Wed, 03 Jun 2009 09:17:54 -0500
We develop an economic theory of GAAP under the assumption that GAAP鈥檚 objective is to facilitate efficient capital allocation within an economy. The theory predicts that GAAP as shaped by the economic forces of demand for and supply of financial information would focus on performance measurement and control through the income statement and balance sheet. In addition, the theory allows us to compare and contrast extant GAAP, as produced in a regulated setting, with a GAAP that might arise ...

Date Posted:Wed, 03 Jun 2009 00:00:00 -0500
Based on extant literature, we review the positive theory of GAAP. The theory predicts that GAAP?s principal focus is on control (performance measurement and stewardship) and that verifiability and conservatism are critical features of a GAAP shaped by market forces. We recognize the advantage of using fair values in circumstances where these are based on observable prices in liquid secondary markets, but caution against expanding fair values to financial reporting more generally. We conclude that rather than converging U.S. GAAP with IFRS, competition between the FASB and the IASB would allow GAAP to better respond to market forces.

Date Posted:Sun, 24 May 2009 14:32:47 -0500
We present a synthesis of academic research on corporate payout policy grounded in the pioneering contributions of Lintner (1956) and Miller and Modigliani (1961). We conclude that a simple asymmetric information framework that emphasizes the need to distribute FCF and that embeds agency costs (as in Jensen (1986)) and security valuation problems (as in Myers and Majluf (1984)) does a good job of explaining the main features of observed payout policies 鈥� i.e., the massive size of corporate ...

Date Posted:Tue, 19 May 2009 21:07:49 -0500
We present a synthesis of academic research on corporate payout policy grounded in the pioneering contributions of Lintner (1956) and Miller and Modigliani (1961). We conclude that a simple asymmetric information framework that emphasizes the need to distribute FCF and that embeds agency costs (as in Jensen (1986)) and security valuation problems (as in Myers and Majluf (1984)) does a good job of explaining the main features of observed payout policies 鈥� i.e., the massive size of corporate ...

Date Posted:Fri, 15 May 2009 10:38:05 -0500
We study the effect of disclosure on uncertainty by examining how management earnings forecasts affect stock market volatility. Using implied volatilities from exchange-traded options prices, we find that management earnings forecasts, on average, increase short-term volatility. This effect is attributable to forecasts that convey bad news, especially when firms release forecasts sporadically (as opposed to on a routine basis). In the longer run, market uncertainty declines after earnings ...

Date Posted:Thu, 07 May 2009 11:17:04 -0500
We present a synthesis of academic research on corporate payout policy grounded in the pioneering contributions of Lintner (1956) and Miller and Modigliani (1961). We conclude that a simple asymmetric information framework that emphasizes the need to distribute FCF and that embeds agency costs (as in Jensen (1986)) and security valuation problems (as in Myers and Majluf (1984)) does a good job of explaining the main features of observed payout policies 鈥� i.e., the massive size of corporate ...

Date Posted:Thu, 07 May 2009 00:00:00 -0500
We present a synthesis of academic research on corporate payout policy grounded in the pioneering contributions of Lintner (1956) and Miller and Modigliani (1961). We conclude that a simple asymmetric information framework that emphasizes the need to distribute FCF and that embeds agency costs (as in Jensen (1986)) and security valuation problems (as in Myers and Majluf (1984)) does a good job of explaining the main features of observed payout policies - i.e., the massive size of corporate payouts, their timing and, to a lesser degree, their (dividend versus stock repurchase) form. We also conclude that managerial signaling motives, clientele demands, tax deferral benefits, investors' behavioral heuristics, and investor sentiment have at best minor influences on payout policy, but that behavioral biases at the managerial level (e.g., over-confidence) and the idiosyncratic preferences of controlling stockholders plausibly have a first-order impact. 1 Introduction 2 Basic Theory: The Need to Distribute Free Cash Flow is Foundational 3 Security Valuation Problems, Agency Costs, and Optimal Payout Policy 4 Corporate Payouts: Scale, Concentration, and Earnings Linkage 5 Payouts and Earnings: A Closer Look 6 Are Dividends Disappearing' 7 Why Do Dividends Survive' 8 Signaling and the Information Content of Dividends 9 Behavioral Influences on Payout Policy 10 Clientele Effects: Transaction Costs, Institutional Ownership, and Payout Policy 11 Controlling Stockholders and Payout P

Date Posted:Wed, 06 May 2009 11:19:11 -0500
We study management forecasts in Japan, where forecasts are effectively mandated but managers have considerable latitude over the numbers they release. We find that managers鈥� initial earnings forecasts for a fiscal year are systematically upward-biased but that they revise their forecasts downward during the fiscal year so that most earnings surprises are non-negative. Managers鈥� initial forecast optimism is inversely related to firm performance, and is more pronounced for firms with higher ...

Date Posted:Mon, 20 Apr 2009 05:52:44 -0500
We study the effect of disclosure on uncertainty by examining how management earnings forecasts affect stock market volatility. Using implied volatilities from exchange-traded options prices, we find that management earnings forecasts, on average, increase short-term volatility. This effect is attributable to forecasts that convey bad news, especially when firms release forecasts sporadically (as opposed to on a routine basis). In the longer run, market uncertainty declines after earnings ...

Date Posted:Tue, 09 Dec 2008 11:13:43 -0600
Over the past 30 years, there have been significant changes in the distribution of earnings (cross-sectional variation has increased, with increasing left skewness) as well as in corporate payout policy, with many fewer firms paying dividends and the emergence of stock repurchases. We investigate whether the informativeness of payout policy with respect to earnings quality changes over this period. We find that the reported earnings of dividend paying firms are more persistent than those of ...

Date Posted:Thu, 27 Nov 2008 18:35:37 -0600
We study management forecasts in Japan, where forecasts are effectively mandated but managers have considerable latitude over the numbers they release. We find that managers' initial earnings forecasts for a fiscal year are systematically upward-biased but that they revise their forecasts downward during the fiscal year so that most earnings surprises are non-negative. Managers' initial forecast optimism is inversely related to firm performance, and is more pronounced for firms with higher ...

Date Posted:Thu, 21 Aug 2008 07:37:01 -0500
This paper describes the role that accounting for deferred taxes has played in the ongoing financial crisis among the major Japanese banks, as dramatized most vividly by the recent collapse of Resona Bank. I argue that deferred tax accounting: (1) has been used by the Japanese Government, including bank regulators, to help give the major banks collectively the appearance of financial well-being in spite of their economic difficulties, and (2) that managers of these banks have used deferred ...

Date Posted:Mon, 28 Apr 2008 11:33:53 -0500
We study the effect of disclosure on uncertainty by examining how management earnings forecasts affect stock market volatility. Using implied volatilities derived from exchange-traded options prices, we find that management earnings forecasts tend to increase short-term volatility but have little effect on long-term volatility. We also find that when managers issue forecasts that convey bad news relative to analysts' expectations, both short-term and long-term return volatility increase, and ...

Date Posted:Mon, 28 Apr 2008 00:00:00 -0500
We study the effect of disclosure on uncertainty by examining how management earnings forecasts affect stock market volatility. Using implied volatilities from exchange-traded options prices, we find that management earnings forecasts, on average, increase short-term volatility. This effect is attributable to forecasts that convey bad news, especially when firms release forecasts sporadically (as opposed to on a routine basis). In the longer run, market uncertainty declines after earnings are announced regardless of whether there is a preceding earnings forecast. This decline is mitigated when the firm issues a forecast that conveys negative news.

Date Posted:Sun, 06 Jan 2008 00:58:02 -0600
I review and critically evaluate the arguments in favor of reforming current accounting and disclosure practices related to intangibles. I argue that the case for reform is actually rather weak. Proponents of reform provide little cogent evidence in support of claims that current practice is having adverse capital market effects. In fact, theory and evidence from corporate finance suggest that capital markets perform well in financing investments in innovative, high-technology activities ...

Date Posted:Sun, 06 Jan 2008 00:30:47 -0600
Ramanna (2007) provides interesting and novel evidence on how firms use contributions from their political action committees (PACs) to members of Congress as a means of lobbying for preferred positions on the two exposure drafts that led to SFAS-141 and SFAS-142. My discussion raises some concerns about his main conclusion: that pooling firms lobbied the FASB to obtain a "fair value" based impairment rule to facilitate their ability to manipulate financial statements. I offer a more benign ...

Date Posted:Sun, 06 Jan 2008 00:00:00 -0600
Ramanna (2007) provides interesting and novel evidence on how firms use contributions from their political action committees (PACs) to members of Congress as a means of lobbying for preferred positions on the two exposure drafts that led to SFAS-141 and SFAS-142. My discussion raises some concerns about his main conclusion: that pooling firms lobbied the FASB to obtain a fair value based impairment rule to facilitate their ability to manipulate financial statements. I offer a more benign explanation and make some other observations about how this line of research could proceed in the future.

Date Posted:Sun, 06 Jan 2008 00:00:00 -0600
I review and critically evaluate the arguments in favor of reforming current accounting and disclosure practices related to intangibles. I argue that the case for reform is actually rather weak. Proponents of reform provide little cogent evidence in support of claims that current practice is having adverse capital market effects. In fact, theory and evidence from corporate finance suggest that capital markets perform well in financing investments in innovative, high-technology activities. I discuss why mandating additional disclosure in this area is unlikely to be successful and that proposals to recognize intangibles are also flawed. In my view, private incentives are likely to be the most successful way of encouraging disclosure on intangibles, which means that little needs to be done on the part of accounting standard-setters.

Date Posted:Sat, 03 Nov 2007 14:49:55 -0500
This paper examines how the relation between earnings and payout policy has evolved over the last three decades. Three principal groups of payers have emerged: firms that pay dividends and make regular repurchases, firms that make regular repurchases, and firms that make occasional repurchases. Firms that only pay dividends are largely extinct. Repurchases are increasingly used in place of dividends, even for firms that continue to pay dividends. While other factors help explain the timing ...

Date Posted:Sat, 03 Nov 2007 00:00:00 -0500
This paper examines how the relation between earnings and payout policy has evolved over the last three decades. Three principal groups of payers have emerged: firms that pay dividends and make regular repurchases, firms that make regular repurchases, and firms that make occasional repurchases. Firms that only pay dividends are largely extinct. Repurchases are increasingly used in place of dividends, even for firms that continue to pay dividends. While other factors help explain the timing of repurchases, the overall level of repurchases is fundamentally determined by earnings. The results suggest that repurchases are now the dominant form of payout.

Date Posted:Tue, 21 Aug 2007 09:00:43 -0500
We investigate whether earnings guidance affects aggregate stock returns through its effects on expectations about overall earnings performance and/or aggregate expected returns. We find that aggregate guidance, especially relative levels of quarterly downward guidance, is associated with analyst- and time-series-based measures of aggregate earnings news. We find more modest evidence that guidance, again, largely downward guidance, is associated with market returns - market returns appear to ...

Date Posted:Tue, 21 Aug 2007 00:00:00 -0500
We investigate whether earnings guidance affects aggregate stock returns through its effects on expectations about overall earnings performance and/or aggregate expected returns. We find that aggregate guidance, especially relative levels of quarterly downward guidance, is associated with analyst- and time-series-based measures of aggregate earnings news. We find more modest evidence that guidance, again, largely downward guidance, is associated with market returns - market returns appear to respond to guidance toward the end of each calendar quarter, when most earnings preannouncements are released, and there is some evidence that firm-level guidance affects market returns in short windows around its release.

Date Posted:Wed, 14 Mar 2007 16:18:54 -0500
Although a great deal of research documents the information content of management earnings forecasts at the firm level, there is little research on the informativeness of aggregate earnings guidance. We argue that aggregate earnings guidance is potentially informative at the market/economy level through its effects on expectations about market-level expected future cash flows and expected returns. We find that aggregate guidance, especially relative levels of quarterly downward guidance, is ...

Date Posted:Fri, 09 Mar 2007 00:00:00 -0600
This paper provides evidence on firms that report long "strings" of consecutive increases in earnings per share (EPS). First, we find 746 firms that report earnings strings of at least 20 quarters since 1962, and show that this frequency is much larger than would be expected by chance. We interpret this as prima facie evidence of earnings management. Next, we document that these firms enjoy abnormal returns that average over 20 percent per year during the first five years of these strings, and these returns are larger than those of firms reporting at least five years of consecutive increases in annual (but not quarterly) EPS. We argue that these market premia, and the rapidity with which they disappear once the strings end, provide managers with incentives to maintain and extend the strings. Finally, we present several tests that document how managers of these firms use various earnings management tools to help their firms sustain and extend these strings.

Date Posted:Thu, 08 Mar 2007 19:49:22 -0600
This paper provides evidence on firms that report long "strings" of consecutive increases in earnings per share (EPS). First, we find 746 firms that report earnings strings of at least 20 quarters since 1962, and show that this frequency is much larger than would be expected by chance. We interpret this as prima facie evidence of earnings management. Next, we document that these firms enjoy abnormal returns that average over 20 percent per year during the first five years of these strings, ...

Date Posted:Fri, 08 Sep 2006 11:59:46 -0500
This study provides evidence on management forecasts in Japan, where managers are effectively required to provide sales and earnings forecasts at the beginning of each fiscal year and to update those forecasts regularly. Compared to many other countries where forecasting is voluntary and litigation is an important consideration for management, the Japanese institutional setting provides us with an opportunity to investigate several hypotheses related to managers' forecasting incentives. We ...

Date Posted:Fri, 08 Sep 2006 00:00:00 -0500
We study management forecasts in Japan, where forecasts are effectively mandated but managers have considerable latitude over the numbers they release. We find that managers? initial earnings forecasts for a fiscal year are systematically upward-biased but that they revise their forecasts downward during the fiscal year so that most earnings surprises are non-negative. Managers? initial forecast optimism is inversely related to firm performance, and is more pronounced for firms with higher levels of insider ownership, for smaller firms, and for firms with a history of forecast optimism. The fact that managers? forecasts tend to be consistently optimistic suggests that reputation effects are insufficient to ensure managerial forecast accuracy. We also find that the information content of managers? forecasts is related to proxies for whether market participants view the forecasts as credible.

Date Posted:Fri, 01 Sep 2006 08:46:16 -0500
This paper provides evidence on firms that report long "strings" of consecutive increases in earnings per share (EPS). First, we find 746 firms that report earnings strings of at least 20 quarters since 1962, and show that this frequency is much larger than would be expected by chance. We interpret this as prima facie evidence of earnings management. Next, we document that these firms enjoy abnormal returns that average over 20 percent per year during the first five years of these strings, ...

Date Posted:Thu, 08 Jun 2006 00:00:00 -0500
There have been fundamental changes in corporate dividend policy over the last several decades (Fama and French, 2001; DeAngelo, DeAngelo, and Skinner, 2000). To shed new light on the disappearance of dividends, this paper examines how the relation between earnings and corporate payout policy changes over the last 50 years. Since 1980, two groups of payers emerge: firms that both pay dividends and make repurchases and firms that only make repurchases. For firms that both pay dividends and make repurchases, managers increasingly coordinate dividend and repurchase decisions in a way that maps total payouts into earnings. Because managers use repurchases to pay out earnings increases, this helps to explain why dividend policy becomes increasingly conservative. The large majority of these firms have paid dividends for decades. Earnings do a good job of explaining payouts for firms that only make repurchases as well, suggesting that newer firms without a dividends history use repurchases in place of dividends. Overall, the evidence suggests that corporate earnings now drive total firm payouts - dividends and repurchases - and that repurchases play an increasingly important role, which helps to explain the disappearance of dividends.

Date Posted:Wed, 07 Jun 2006 19:19:23 -0500
There have been fundamental changes in corporate dividend policy over the last several decades (Fama and French, 2001; DeAngelo, DeAngelo, and Skinner, 2000). To shed new light on the disappearance of dividends, this paper examines how the relation between earnings and corporate payout policy changes over the last 50 years. Since 1980, two groups of payers emerge: firms that both pay dividends and make repurchases and firms that only make repurchases. For firms that both pay dividends and ...

Date Posted:Tue, 16 May 2006 06:49:18 -0500
We investigate whether earnings guidance affects aggregate stock returns through its effects on expectations about overall earnings performance and/or aggregate expected returns. We find that aggregate guidance, especially relative levels of quarterly downward guidance, is associated with analyst- and time-series-based measures of aggregate earnings news. We find more modest evidence that guidance, again, largely downward guidance, is associated with market returns - market returns appear to ...

Date Posted:Tue, 16 May 2006 00:00:00 -0500
We investigate whether earnings guidance affects aggregate stock returns through its effects on expectations about overall earnings performance and/or aggregate expected returns. We find that aggregate guidance, especially relative levels of quarterly downward guidance, is associated with analyst- and time-series-based measures of aggregate earnings news. We find more modest evidence that guidance, again, largely downward guidance, is associated with market returns - market returns appear to respond to guidance toward the end of each calendar quarter, when most earnings preannouncements are released, and there is some evidence that firm-level guidance affects market returns in short windows around its release.

Date Posted:Wed, 18 Jan 2006 06:58:50 -0600
We use Dealscan, a database of private corporate lending agreements, to provide large-sample tests of the debt covenant hypothesis. Dealscan offers several advantages over the data available in previous debt covenant studies, principally through much larger sample sizes, more representative samples, and the availability of extensive actual covenant detail. These data advantages allow us to construct powerful tests, in which we find clear support for the debt covenant hypothesis. Apart from ...

Date Posted:Mon, 10 Oct 2005 05:28:44 -0500
This paper describes the role that accounting for deferred taxes has played in the ongoing financial crisis among the major Japanese banks, as dramatized most vividly by the recent collapse of Resona Bank. I argue that deferred tax accounting: (1) has been used by the Japanese Government, including bank regulators, to help give the major banks collectively the appearance of financial well-being in spite of their economic difficulties, and (2) that managers of these banks have used deferred ...

Date Posted:Mon, 10 Oct 2005 00:00:00 -0500
This paper describes the role that accounting for deferred taxes has played in the ongoing financial crisis among the major Japanese banks, as dramatized most vividly by the recent collapse of Resona Bank. I argue that deferred tax accounting: (1) has been used by the Japanese Government, including bank regulators, to help give the major banks collectively the appearance of financial well-being in spite of their economic difficulties, and (2) that managers of these banks have used deferred tax accounting to bolster their banks' regulatory capital levels when their economic circumstances deteriorate. I present evidence that is generally consistent with these arguments, supporting economists' views that accounting has played a role in helping the Japanese Government to postpone the politically difficult task of reforming the major banks.

Date Posted:Thu, 04 Aug 2005 00:00:00 -0500
Although a great deal of research documents the information content of management earnings forecasts at the firm level, there is little research on the informativeness of aggregate earnings guidance. We argue that aggregate earnings guidance is potentially informative at the market/economy level through its effects on expectations about market-level expected future cash flows and expected returns. We find that aggregate guidance, especially relative levels of quarterly downward guidance, is associated with analyst- and time-series-based measures of aggregate earnings news. We also find some evidence that guidance - again, largely downward guidance - is associated with market returns.

Date Posted:Tue, 02 Mar 2004 22:33:26 -0600
We investigate whether corporate managers' stock repurchase decisions are affected by their incentives to manage diluted earning-per-share (EPS). We find that managers increase the level of their firms' stock repurchases when: (1) the dilutive effect of outstanding employee stock options (ESOs) on diluted EPS increases, and (2) earnings are below the level required to achieve the desired rate of EPS growth. We also find that managers' repurchase decisions are not associated with actual ESO ...

Date Posted:Thu, 08 Jan 2004 08:52:28 -0600
Over the past 30 years, there have been significant changes in the distribution of earnings ? cross-sectional variation has increased, with increasing left skewness?as well as in corporate payout policy, with many fewer firms paying dividends and the emergence of stock repurchases. We investigate whether the informativeness of payout policy with respect to earnings quality changes over this period. We find that the reported earnings of dividend-paying firms are more persistent than those of other firms and that this relation is remarkably stable over time. We also find that dividend payers are less likely to report losses and those losses that they do report tend to be transitory losses driven by special items. These results do not hold as strongly for stock repurchases, consistent with them representing less of a commitment than dividends.

Date Posted:Thu, 04 Dec 2003 04:16:03 -0600
Although the number of dividend paying industrials declines by more than 50% over the last two decades (Fama and French (2001a)), aggregate real dividends paid by industrials increase over the same period. Dividends increase despite a precipitous decline in the number of payers because (i) the reduction in payers occurs almost entirely among firms that pay very small dividends, and (ii) increased real dividends from the top payers swamp the modest dividend reduction associated with the loss ...

Date Posted:Fri, 28 Nov 2003 13:59:41 -0600
We investigate whether corporate managers' stock repurchase decisions are affected by their incentives to manage diluted earning-per-share (EPS). We find that managers increase the level of their firms' stock repurchases when: (1) the dilutive effect of outstanding employee stock options (ESOs) on diluted EPS increases, and (2) earnings are below the level required to achieve the desired rate of EPS growth. We also find that managers' repurchase decisions are not associated with actual ESO exercises, suggesting that they are driven by incentives to manage diluted but not basic EPS, and strengthening our earnings management interpretation.

Date Posted:Mon, 27 Oct 2003 03:20:12 -0600
We investigate managers' decisions to supplement their firms' management earnings forecasts. We classify these supplementary disclosures as either qualitative "soft talk" disclosures or verifiable forward-looking statements. We find that managers provide "soft talk" disclosures with similar frequency for good and bad news forecasts, but are more likely to supplement good news forecasts with verifiable forward-looking statements. We examine the market response to these forecasts and find ...

Date Posted:Fri, 03 Oct 2003 12:57:12 -0500
We investigate managers' decisions to supplement their firms' management earnings forecasts. We classify these supplementary disclosures as either qualitative "soft talk" disclosures or verifiable forward-looking statements. We find that managers provide "soft talk" disclosures with similar frequency for good and bad news forecasts, but are more likely to supplement good news forecasts with verifiable forward-looking statements. We examine the market response to these forecasts and find that bad news earnings forecasts are always informative but that good news forecasts are informative only when supplemented by verifiable forward-looking statements, suggesting that these statements bolster the credibility of good news forecasts.

Date Posted:Tue, 16 Sep 2003 16:31:42 -0500
Aggregate real dividends paid by industrial firms increased over the past two decades even though, as Fama and French (2001, JFE) document, the number of dividend payers decreased by over 50%. The reason is that (i) the reduction in payers occurs almost entirely among firms that paid very small dividends, and (ii) increased real dividends from the top payers swamp the modest dividend reduction from the loss of many small payers. These trends reflect high and increasing concentration in the supply of dividends which, in turn, reflects high and increasing earnings concentration. For example, the 25 firms that paid the largest dividends in 2000 account for a majority of the aggregate dividends and earnings of industrial firms. Industrial firms exhibit a two-tier structure in which a small number of firms with very high earnings collectively generates the majority of earnings and dominates the dividend supply, while the vast majority of firms has at best a modest collective impact on aggregate earnings and dividends.

Date Posted:Tue, 16 Sep 2003 07:31:42 -0500
Aggregate real dividends paid by industrial firms increased over the past two decades even though, as Fama and French (2001, JFE) document, the number of dividend payers decreased by over 50%. The reason is that (i) the reduction in payers occurs almost entirely among firms that paid very small dividends, and (ii) increased real dividends from the top payers swamp the modest dividend reduction from the loss of many small payers. These trends reflect high and increasing concentration in the ...

Date Posted:Sat, 22 Feb 2003 02:23:41 -0600
We investigate managers' decisions to supplement their firms' management earnings forecasts. We classify these supplementary disclosures as either qualitative "soft talk" disclosures or verifiable forward-looking statements. We find that managers provide "soft talk" disclosures with similar frequency for good and bad news forecasts, but are more likely to supplement good news forecasts with verifiable forward-looking statements. We examine the market response to these forecasts and find that ...

Date Posted:Wed, 05 Feb 2003 05:52:21 -0600
Bushee, Matsumoto, and Miller (2002) is a timely study in an area 脨 corporate disclosure policy 脨 that is increasingly important to regulators, corporate managers, and academics. The authors report several results that will be of interest to these groups. I describe the corporate disclosure issues that make the authors' research questions of broader relevance than their specific topic might suggest. I then provide comments on theoretical and empirical aspects of the study. Overall, the study ...

Date Posted:Sat, 18 Jan 2003 12:05:55 -0600
Bushee, Matsumoto, and Miller (2002) is a timely study in an area ? corporate disclosure policy ? that is increasingly important to regulators, corporate managers, and academics. The authors report several results that will be of interest to these groups. I describe the corporate disclosure issues that make the authors' research questions of broader relevance than their specific topic might suggest. I then provide comments on theoretical and empirical aspects of the study. Overall, the study is likely to be useful in helping us understand some of the forces at work as corporate disclosure becomes more rapid, more comprehensive, and more open.

Date Posted:Thu, 15 Aug 2002 17:02:43 -0500
Although the number of dividend paying industrials declines by more than 50% over the last two decades (Fama and French (2001a)), aggregate real dividends paid by industrials increase over the same period. Dividends increase despite a precipitous decline in the number of payers because (i) the reduction in payers occurs almost entirely among firms that pay very small dividends, and (ii) increased real dividends from the top payers swamp the modest dividend reduction associated with the loss of many small payers. These secular changes reflect high and increasing concentration in the supply of dividends which, in turn, reflect high and increasing earnings concentration. For example, 26 firms with real earnings of $1 billion-plus account for 63.4% and 46.8% of aggregate industrial earnings and dividends in 2000. Our findings on dividend concentration cast doubt on the empirical validity of the dividend clientele and signaling hypotheses.

Date Posted:Mon, 05 Nov 2001 11:17:09 -0600
Corporate conference calls are large-scale telephone conference calls during which managers make presentations to and answer questions from various market participants, usually about earnings. In this paper, we sample 1,056 corporate conference calls made by 808 firms during February-November 1995 to provide evidence on three questions: (1) whether conference calls provide information to stock market participants, (2) whether investors have equal access to the information provided during these ...

Date Posted:Mon, 05 Nov 2001 10:56:31 -0600
This paper provides evidence on the characteristics of firms that hold conference calls and on whether these calls provide information to market participants. We find that firms that hold conference calls are larger, more profitable, go to the capital markets more often, and are growing more rapidly than other firms. We also find that conference calls provide information to market participants over and above the information contained in the accompanying press release. We find that trading ...

Date Posted:Tue, 03 Jul 2001 00:00:00 -0500
We use Dealscan, a database of private corporate lending agreements, to provide large-sample tests of the debt covenant hypothesis. Dealscan offers several advantages over the data available in previous debt covenant studies, principally through much larger sample sizes, more representative samples, and the availability of extensive actual covenant detail. These data advantages allow us to construct powerful tests, in which we find clear support for the debt covenant hypothesis. Apart from direct tests of the debt covenant hypothesis, we exploit these data to provide broad evidence on the economic role of debt covenants. Specifically, we find that private lenders use debt covenants as "trip wires" for borrowers, that private debt covenants are set tightly, and that technical violations occur relatively often, in about 30% of all loans. We also find that violations are not necessarily associated with financial distress, consistent with the idea that the consequences of violation vary considerably depending on the borrowers' economic circumstances, and that violations are often waived for healthy firms. Finally, since we measure covenant slack directly, we report evidence that the extensively-used leverage variable is a relatively poor proxy for closeness to covenants.

Date Posted:Fri, 29 Sep 2000 13:15:51 -0500
We investigate managers' decisions to supplement their firms' management earnings forecasts. We classify these supplementary disclosures as either qualitative "soft talk" disclosures or verifiable forward-looking statements. We find that managers provide "soft talk" disclosures with similar frequency for good and bad news forecasts, but are more likely to supplement good news forecasts with verifiable forward-looking statements. We examine the market response to these forecasts and find that bad news earnings forecasts are always informative but that good news forecasts are informative only when supplemented by verifiable forward-looking statements, suggesting that these statements bolster the credibility of good news forecasts.

Date Posted:Tue, 16 May 2000 09:06:06 -0500
We address the fact that accounting academics often have very different perceptions of earnings management than do practitioners and regulators. Practitioners and regulators often see earnings management as pervasive and problematic, and in the need of immediate action to remedy. Academics are more sanguine, unwilling to believe that earnings management is being actively practiced by most firms or that the earnings management that does exist should necessarily concern investors. We explore the ...

Date Posted:Mon, 08 May 2000 17:20:24 -0500
We address the fact that accounting academics often have very different perceptions of earnings management than do practitioners and regulators. Practitioners and regulators often see earnings management as pervasive and problematic, and in the need of immediate action to remedy. Academics are more sanguine, unwilling to believe that earnings management is being actively practiced by most firms or that the earnings management that does exist should necessarily concern investors. We explore the reasons for these different perceptions, and argue that each of these groups may benefit from some rethinking of their views about earnings management.

Date Posted:Mon, 01 May 2000 03:08:24 -0500
This paper provides evidence on the relation between the timeliness of voluntary earnings disclosures and the outcomes of related stockholder litigation. Like Francis Philbrick and Schipper (1994a) I find that many lawsuits result from voluntary disclosures of adverse earnings news. However I also document that: (1) many voluntary earnings disclosures are not made on a timely basis; (2) less timely voluntary disclosures result in more costly lawsuit outcomes; (3) a simple model that ...

Date Posted:Wed, 26 Apr 2000 04:04:48 -0500
A long-standing issue in the accounting literature is whether corporate managers exercise their accounting discretion to influence reported earnings. This paper extends this research by investigating whether managers manipulate the 'valuation allowance' for deferred tax assets. This account has several features that recommend it as a good place to look for earnings management. First, since this account is fairly 'new' (1992), there are no well-established formulae, or even any clear ...

Date Posted:Wed, 15 Dec 1999 14:27:05 -0600
This paper documents that (1) special dividends were once commonly paid by NYSE firms, but are now a rare phenomenon; (2) firms typically paid specials almost as predictably as they paid regulars; and (3) despite the dramatic decline in specials as a whole, the incidence of very large specials increased in recent years. Most plausibly, small specials disappeared because their predictability made them close substitutes for regular dividend signals, while large specials survived because their sheer size automatically differentiates them from regulars. Firms that stop paying specials substitute into more frequent regular increases but do not alter the pattern of total dividends (per the Lintner (1956) model). Firms that reduce specials tend to increase regulars, effectively making the two types of dividends closer substitutes (and this tendency is more pronounced in recent years). The stock market typically reacts favorably to the declaration of a special, but does not systematically differentiate between special increases and decreases to a still-positive level. The latter regularities give managers incentives to pay specials more frequently than they otherwise would which, in turn, makes specials more closely resemble regulars. Firms that continue to pay specials have lower institutional ownership, suggesting that the long-term trend to a more sophisticated stockholder clientele contributed to the demise of poorly differentiated dividend signals. Finally, special divide

Date Posted:Wed, 15 Dec 1999 04:27:05 -0600
This paper documents that (1) special dividends were once commonly paid by NYSE firms, but are now a rare phenomenon; (2) firms typically paid specials almost as predictably as they paid regulars; and (3) despite the dramatic decline in specials as a whole, the incidence of very large specials increased in recent years. Most plausibly, small specials disappeared because their predictability made them close substitutes for regular dividend signals, while large specials survived because their ...

Date Posted:Tue, 16 Nov 1999 08:37:15 -0600
Corporate conference calls are large-scale telephone conference calls during which managers make presentations to and answer questions from various market participants, usually about earnings. In this paper, we sample 1,056 corporate conference calls made by 808 firms during February-November 1995 to provide evidence on three questions: (1) whether conference calls provide information to stock market participants, (2) whether investors have equal access to the information provided during these calls, and (3) why managers of some firms hold conference calls while managers of other firms do not. We believe this research is important because managers? use of conference calls has grown enormously, yet we know little about how these calls affect investors.

Date Posted:Tue, 14 Sep 1999 01:37:11 -0500
Managers of more than two-thirds of 145 NYSE firms responded to stalled earnings growth by increasing dividends, with most increases at least as large as the dividend increase in the peak earnings year. These dividend increases are difficult to reconcile with signalling models since (i) most firms' prior sustained earnings growth evaporated, and (ii) there is essentially no relation between favorable dividend signals and future earnings. The stock market recognized the reduced growth earnings, with average abnormal returns of - 17.65 percent in the year of the initial earnings decline and -41.40 percent cumulated over that and the next three years. We find some evidence that sample firms' dividend policies reflect behavioral biases that lead managers to send overly optimistic signals.

Date Posted:Mon, 13 Sep 1999 16:37:11 -0500
Managers of more than two-thirds of 145 NYSE firms responded to stalled earnings growth by increasing dividends, with most increases at least as large as the dividend increase in the peak earnings year. These dividend increases are difficult to reconcile with signalling models since (i) most firms' prior sustained earnings growth evaporated, and (ii) there is essentially no relation between favorable dividend signals and future earnings. The stock market recognized the reduced growth earnings, ...

Date Posted:Mon, 16 Aug 1999 01:37:44 -0500
It is well-established that the realized returns of ?growth? stocks have been low relative to other stocks. We show that this phenomenon is explained by a large and asymmetric response to negative earnings surprises for growth stocks. After controlling for this effect, there is no longer evidence of a stock return differential between growth stocks and other stocks. Our evidence is more consistent with investors having naively optimistic expectations about the prospects of growth stocks (e.g ...

Date Posted:Wed, 28 Jul 1999 16:17:00 -0500
It is well-established that the realized returns of ?growth? stocks have been low relative to other stocks. We show that this phenomenon is explained by a large and asymmetric response to negative earnings surprises for growth stocks. After controlling for this effect, there is no longer evidence of a stock return differential between growth stocks and other stocks. Our evidence is more consistent with investors having naively optimistic expectations about the prospects of growth stocks (e.g., Lakonishok, Shleifer, and Vishny, 1994) than with the existence of unidentified risk factors that are lower for growth stocks (e.g., Fama and French, 1992).

Date Posted:Sat, 01 May 1999 00:00:00 -0500
This paper provides evidence on firms that report long "strings" of consecutive increases in earnings per share (EPS). First, we find 746 firms that report earnings strings of at least 20 quarters since 1962, and show that this frequency is much larger than would be expected by chance. We interpret this as prima facie evidence of earnings management. Next, we document that these firms enjoy abnormal returns that average over 20 percent per year during the first five years of these strings, and these returns are larger than those of firms reporting at least five years of consecutive increases in annual (but not quarterly) EPS. We argue that these market premia, and the rapidity with which they disappear once the strings end, provide managers with incentives to maintain and extend the strings. Finally, we present several tests that document how managers of these firms use various earnings management tools to help their firms sustain and extend these strings.

Date Posted:Wed, 12 Aug 1998 07:06:08 -0500
This paper explores the determinants of the valuation allowance for deferred tax assets under SFAS No. 109. We find that, consistent with SFAS No. 109, the allowance is larger for firms with relatively more deferred tax assets and smaller for firms with higher levels of expected future taxable income. The most important explanatory variable for the valuation allowance is the level of firms' tax credit and tax loss carryforwards, consistent with these items being more difficult to realize. We ...

Date Posted:Mon, 03 Aug 1998 16:28:40 -0500
This paper explores the determinants of the valuation allowance for deferred tax assets under SFAS No. 109. We find that, consistent with SFAS No. 109, the allowance is larger for firms with relatively more deferred tax assets and smaller for firms with higher levels of expected future taxable income. The most important explanatory variable for the valuation allowance is the level of firms' tax credit and tax loss carryforwards, consistent with these items being more difficult to realize. We find little evidence that managers use the valuation allowance for earnings management purposes, although these tests may not be very powerful.

Date Posted:Tue, 16 Jun 1998 11:18:09 -0500
A long-standing issue in the accounting literature is whether corporate managers exercise their accounting discretion to influence reported earnings. This paper extends this research by investigating whether managers manipulate the 'valuation allowance' for deferred tax assets. This account has several features that recommend it as a good place to look for earnings management. First, since this account is fairly 'new' (1992), there are no well-established formulae, or even any clear guidelines, for deciding on the appropriate level for this allowance. Second, the appropriate level of the allowance depends on managers' expectations about future earnings. For both of these reasons managers must exercise an unusual amount of discretion in choosing the appropriate level for this account. Finally, for many firms this provision is large enough to effect material adjustments to accounting earnings. We find that there is a good deal of variation across firms in the level of the valuation allowance. Part of this variation is explained by factors that appropriately reflect managers' expectations about whether their firms' deferred tax assets will be realized. In addition, after controlling for these factors, we find support for two earnings-management hypotheses: both the debt/equity hypothesis and income-smoothing have empirical support.