While aggregate earnings should affect aggregate stock returns, standard portfolio theory predicts that the cross-sectional dispersion in firm-level earnings would not affect aggregate stock returns. Nonetheless, this paper demonstrates a surprisingly robust relation between cross-sectional...

his paper develops a theoretical model to understand the contractual role of accounting conservatism in debt contracts. The optimal debt contract includes an accounting based covenant that gives the creditor the right to liquidate when accounting information reveals unfavorable news about the...

This study examines how accounting conservatism may affect the information environment of analysts’ earnings forecasts, taking into account the interaction between unconditional and conditional conservatism. Unconditional conservatism preempts conditional conservatism in the later period and...

This paper examines risk-taking incentives in banks under different accounting regimes with capital regulation. In the model the bank's decisions of capital issuance and investment policy are jointly determined. Given exogenous minimum capital requirement, the bank is more likely to issue equity...

Prior research documents that individual stock returns respond to earnings differently under new accounting standards, regulations, or changes in enforcement. This paper examines whether this result extends to the aggregate stock market. We take a macro perspective and study the properties of...

This paper studies the effects of capacity utilization on accounting profit margins and stock returns. Since accounting profit margins represent the average profit per unit and not the economists' concept of unit contribution margin, the marginal/variable profit per unit, a firm with idle...