This paper analyzes the relationship between a firm's demand for different quality auditors and opportunities for earnings management.In our model, the firm simultaneously chooses the bias it introduces into its pre-audited earnings and the quality of its auditor. We show that firms that choose...

Since the 1939 Revenue Act requires a firm using LIFO for taxes to use LIFO for financial reporting, a firm wishing to minimize its tax payments by the use of LIFO must use LIFO as a reporting method. The tax savings to the firm adopting LIFO equals the difference between FIFO cost of goods sold...

A corollary to Murphy's Law is: The other lane always moves faster than my lane. We show that even when the law is objectively untrue, because of sampling bias, people perceive the law as true. A manager who is aware of this perceptual bias will try to structure her budget cutbacks and all other...

The accounting for defined benefit pension and postretirement benefit plans requires substantial managerial judgment and therefore allows for managerial discretion in the choice of plan assumptions. Previous research has shown that firms tend to increase their assumed discount rates to minimize...

In a recent paper, Yoram C. Peles and Meir I. Schneller (1989) ignore the sampling autocorrelation bias. A replication of their work that removes the bias changes their results. With the bias removed, there is no evidence that their three long-term ratios follow an adjustment process. Copyright...