This monograph provides a thorough review of earnings quality issues and analysis. Its primary objectives are to help gain a deep understanding of earnings quality and facilitate the development of comprehensive, granular, and contextual earnings quality indicators and analyses. While there are...

Does option-based compensation have a causal influence on payout policy? To address this question we examine the adoption of mandatory expensing of stock options (via accounting standard FAS123R), a plausible exogenous shock to the use of option-based compensation. As FAS123R applies to all...

In the presence of business groups, the expropriation through related party transactions (RPTs) is common and costly to minority shareholders. At the same time, it is well recognized that RPTs can help firms overcome market shortcomings. Using the setting of India's RPT voting rule, I find that...

We find significant positive abnormal returns surrounding a surprising and quick enactment of a law that restricts executive pay to a binding upper limit in a few industries. We find that the effect is concentrated only for firms in which the restriction is binding. We also find that the...

A principal-components analysis demonstrates that common earnings factors explain a substantial portion of rm-level earnings variation, implying earnings shocks have substantial systematic components and are not almost fully diversifiable as prior literature has concluded. Furthermore, the...

Do firm managers invest the savings from tax avoidance in positive net present value projects that enhance future profitability or divert them towards perquisite consumption, rent extraction, and value destroying projects? We indirectly investigate this question by testing whether tax avoidance...

Fair value accounting (FVA) has been blamed for amplifying the financial crisis of 2008-2009. We investigate investor and creditor reactions to policymaker deliberations, recommendations and decisions about FVA and impairment rules in the banking industry. If FVA was a key contributor to the...

This study provides evidence relevant for estimating and evaluating the terminal value term used in DCF valuation. Consistent with common practice, exit multiples based on EBITDA dominate those based on either net operating profit after tax (NOPAT) or net operating assets (NOA). However, both...

We investigate the impact of recurring fair value versus amortized cost measurement for accounting recognition purposes on the timeliness of insurers' other-than-temporary (OTT) impairments of non-agency residential mortgage-backed securities (NAMBS) around the 2007–2009 financial crisis....

Overproduction reduces cost of goods sold by spreading fixed costs over an inflated number of units. An estimate of the overproduction bias helps predict future profitability, and adjusting profitability measures to undo this distortion improves their explanatory power for future profitability....