We hypothesize and provide evidence that convexity in the returns-earnings relation results in significant part from firms' real continuation options, i.e., their discretionary ability to continue operations, to make new investments, and to raise capital when financing deficits arise. We...

Complementing prior literature that examines determinants of the sensitivity of returns to losses, we provide evidence that the sensitivity of returns to gains increases with firms' real continuation call options, i.e., their discretionary ability to continue operations, to make new investments,...

We hypothesize and provide evidence that accounting conservatism and complementary accounting-based debt covenants increase expected recovery rates by preserving the firm's fungible economic assets at levels sufficient to support recovery by debtholders. We employ Das & Hanouna's (2009) approach...

Prior research shows that firms' financial statement comparability improves the accuracy of market participants' valuation judgments and thus may reduce firms' costs of capital. Distinct from prior research focusing on the equity market, we develop measures of comparability relevant to debt...

The use of accounting measures and disclosures in banks' contracts and regulation suggests that the quality of banks' financial reporting is central to the efficacy of market discipline and non-market mechanisms in limiting banks' development of debt and risk overhangs in economic good times and...

To mitigate counterparty risks, derivatives dealers and their frequent counterparties typically engage in bilateral master netting agreements (MNAs) that cover many derivatives with largely offsetting gross fair values. MNAs specify the close out and net settlement of the covered derivatives...

We investigate how overlapping activities of bank regulators and supervisors and bank auditors influence banks' internal control quality, auditor-client contracting (audit fees and audit effort), and financial statement reliability. Using material weaknesses in internal controls as a proxy for...

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...