This paper characterizes the equilibrium stock price reaction to arbitrarily distributed signals. This stock price reaction is shown to be proportional to the Fisher score of the news calculated under the risk-neutral probability measure. The expression for the Fisher score takes a particularly...

In a model with irreversible capacity investments, we show that financial statements prepared under replacement cost accounting provide investors with sufficient information for equity valuation purposes. Under alternative accounting rules, including historical cost and value in use accounting,...

Existing capital accumulation models that show that goal congruence is achievable for sequential investment decisions rely on the assumption that the firm is operating in an ever-expanding product market. The good news is that this result can be extended to a setting with possible bad news about...

This paper extends the Q-theory of investment to capital goods with arbitrary efficiency profiles. Under the assumption of geometric economic depreciation employed by the traditional Q-theory, a firm's replacement cost of assets-in-place is independent of their vintage composition and can be...