This essay describes implications of the subprime crisis for accounting. First, I overview the institutional and market aspects of subprime mortgages and other positions, focusing on those with the greatest relevance for accounting. I explain how the investment performance of...

We hypothesize and provide evidence that certain general characteristics of banks' loan securitizations accounted for as sales determine the extent to which banks retain the risks of the securitized loans. We show that banks retain more risk when: (1) the types of loans have higher and/or less...

This study empirically documents that firms with large ratios of current capital expenditures to prior four-year average capital expenditures enjoy positive contemporaneous abnormal returns. It further documents that average capital expenditures across Compustat-covered U.S. corporations are...

Prior research shows that during the pre-1990 bust financially weak banks managed income upward by delaying provisions for losses on heterogeneous loans. In contrast, we predict and find that during the 1990s boom profitable banks managed income downward by accelerating provisions for losses on...

We investigate two explanations for the declining contemporaneous linear relation between annual stock returns and accounting earnings over the past 30 years: (1) earnings increasingly reflect news with a lag relative to stock prices and (2) earnings increasingly reflect good and bad news in an...

We compare the accuracy of analyst (I/B/E/S consensus) and earnings-to-price ratio (E/P)-based forecasts of annual earnings across firms. We find that generalizations of Beaver Lambert and Morse's (BLM 1980) E/P-based forecasting model are more accurate than analyst forecasts both for most firms...

We distinguish two sources of variation in the book-to-market ratio (BTM) -- bias and lags -- with different implications for future book return on equity (ROE). We hypothesize that the bias and lag components of the BTM both have negative implications for future ROE, but the bias component's...

We provide evidence that banks smooth income by managing provisions for loan losses and loan charge-offs in a coordinated fashion that varies across the bust and boom phases of the business cycle and across homogeneous and heterogeneous loan types. In particular, during the 1990s boom, we...

We investigate whether the market prices the change in net trading assets as an operating or non-operating activity or some mixture of the two, and whether this market pricing is consistent with the (fundamental) association of the change in net trading assets with future cash flows from...

This essay describes implications of the subprime crisis for accounting. First, I overview the institutional and market aspects of subprime lending with the greatest accounting relevance. Second, I discuss the critical aspects of FAS 157's fair value definition and measurement guidance and...