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,...

We add to the explanatory theory of skewness by showing how real options generate convexity of payoffs and skewness of returns. We show empirically that real growth options are significant, positive, and robust determinants of idiosyncratic skewness over and above previously reported...