Trading in a secondary stock market not only redistributes wealth among investors but also generates information that guides subsequent investment. We provide a positive theory of disclosure that reflects both functions of a secondary market. By making private information public, disclosure...

In this paper, I provide two general insights that are useful in evaluating the economic trade-offs of alternative accounting measurement rules. First, when there are multiple imperfections in the world, restricting a strict subset of it need not always improve welfare. Second, a firm is not a...

We estimate the firm-level rate at which working capital accruals convert into future cash flows. These conversion rates determine the expected cash value of a dollar of working capital accruals. For firms whose accrual innovations reverse within one year, we find that, on average, a one dollar...

I develop a new approach to understanding accounting accruals. I start by introducing a model that explicitly incorporates the role of accruals in measuring firm performance. Using this model, I characterize accounting quality by the degree to which accruals fulfill their performance measurement...

We investigate the extent to which hedge fund managers smooth self‐reported returns. In contrast with prior research on the “anomalous” properties of hedge fund returns, we observe the mechanisms used to price the fund's investment positions and report the fund's performance to investors,...

We examine the relation between mark-to-market (MTM) accounting for securities and information asymmetry among bank investors. Relative to historical cost, MTM incorporates more timely information in financial statements. The primary effect of more timely disclosure most likely is to reduce...

In this paper we investigate whether the secondary market trading of syndicated loans compromises the quality of bank lending practices. We compare the performance of borrowers of traded loans following the initial trading event against the performance of borrowers of non-traded loans following...

The choice between fair value and historical cost accounting is the subject of long-standing controversy among accounting academics and regulators. Nevertheless, the market-based evidence on this subject is very limited. We study the choice of fair value versus historical cost accounting for...

While most accounting information is idiosyncratic in nature, economy-wide factors such as accounting standards affect the quality of idiosyncratic accounting information of many firms simultaneously. We study idiosyncratic and systematic features of accounting information by embedding a...

We find that Sarbanes-Oxley (SOX) had two significant effects on the audit market for nonpublic entities. The first short-run effect stems from inelastic labor supply coupled with an audit demand shock from public companies. As a result, private companies reduced their use of attested financial...