Shareholders want managers to invest in all positive net present value (NPV) projects, and to avoid those with negative NPV. Using a simple model of firm value, we explain why stock op-tions—when issued by firms with high price-to-book value ratios—do not always provide the incentive for...

In-process research and development is the value allocated to incomplete research and development projects in acquisitions treated as purchases, and charged to expense by the acquirer at the acquisition date. Researchers have documented the benefits to acquiring companies from large IPRD...

Recent accounting research finds that the discretionary accrual component of earnings communicates managers' private information to stock market participants. We show that effects related to managerial compensation contracts and corporate debt agreements influence how the stock market interprets...

The paper provides evidence that the threat of litigation influences managers' accounting and insider trading choices in firms experiencing deteriorating financial performance. We analyze the two-year period preceding technical default for 462 firms during 1983-1997. Our sample firms have...

This paper evaluates two hypotheses about the relation between insider selling and earnings management in periods preceding poor corporate performance. Consistent with our litigation avoidance hypothesis, we provide evidence that managers manage earnings upwards after they have engaged in...

This paper evaluates the value relevance of earnings in knowledge-based and traditional industries. We focus on two factors - earnings' lack of timeliness and noise - that contribute to the weak contemporaneous association between earnings and stock returns in knowledge-based industries....

Shareholders, managers, and researchers rely on estimates of a firm's past investment returns when evaluating its performance, and estimating its value. In this paper, we revisit the question of whether accounting rates of return (ARR)-computed from financial statement data-are appropriate...

We use a sample of firms that experience technical default to investigate whether an observable managerial action, managers? trading, is useful in (1) determining the existence of pre-default earnings management, and (2) in assessing whether specific contract modifications in renegotiated debt...

In 1998, SEC Chairman Arthur Levitt voiced his concerns about earnings management, including understatements of earnings. SEC Chief Accountant Lynn Turner communicated his opposition to "excessive" write-offs of In-Process Research and Development costs (IPRD) in September 1998. We document how...

Industry classification is an important component of the methodological infrastructure of accounting research. Researchers have generally used the Standard Industrial Classification (SIC) system for assigning firms to industries. In 1999, the major statistical agencies of Canada, Mexico, and the...