Prior research generally finds that firms underreport option expense by managingassumptions underlying option valuation (e.g. they shorten the expected option lives), but it fails to document management of a key assumption, the one concerning expected stock-price volatility. Using a new...

The accruals anomaly - the negative relationship between accounting accruals and subsequent stock returns - has been well documented in the academic and practitioner literatures for almost a decade. To the extent that this anomaly represents market inefficiency, one would expect sophisticated...