International differences in the demand for accounting income predictably affect the way it incorporates economic income (dividend-adjusted change in market value) over time. We characterize the quot;shareholderquot; and quot;stakeholderquot; corporate governance models of common and code law...

The concept of conditional conservatism has provided new insight into financial reporting and has stimulated considerable research since Basu (1997) developed it. While the concept encapsulated in the adage “anticipate no profits but anticipate all losses” is reasonably clear, estimating it...

In this paper, we derive a measure of diluted EPS that incorporates the economic implications of the dilutive effects of employee stock options. We show that the existing FASB treasury-stock method of accounting for the dilutive effects of outstanding options systematically understates the...

A substantial literature investigates conditional conservatism, defined as asymmetric accounting recognition of economic shocks (ldquo;newsrdquo;), and how it depends on various market, political and institutional variables. Studies typically assume the Basu (1997) asymmetric timeliness...

I review empirical research on the relation between capital markets and financial statements. The principal sources of demand for capital markets research in accounting are fundamental analysis and valuation, tests of market efficiency, and the role of accounting numbers in contracts and the...

Accounting standards reflect a trade-off between relevance and reliability. This trade-off is intensely debated in the context of the accounting standard for Ramp;D costs. However, almost all of the empirical research focuses only on the relevance of accounting disclosures about Ramp;D costs....

We derive a measure of diluted EPS that incorporates economic implications of the dilutive effects of employee stock options. We show that the existing FASB treasury-stock method of accounting for the dilutive effects of outstanding options systematically understates the dilutive effect of stock...

The nature of corporate hedging behavior is largely unexplored in the existing empirical literature. We attempt to fill this gap by analyzing data from annual financial statements of 425 large US corporations. The sample reveals that many firms actively manage their exposures with sizable...

Considerable research in accounting focuses on the role of accruals in capital market valuation and in contracting. The research shows accruals enable managers to improve on cash flows as a mesure of firm performance. However, since accruals provide managers with a means of managing...

We evaluate the influence of measurement error in analysts' forecasts on the accuracy of implied cost of capital estimates from various implementations of the ‘implied cost of capital' approach, and develop corrections for the measurement error. We document predictable error in the implied...