In this paper we argue that information asymmetry between firm insiders and outside equity investors generates conservatism in financial statements. Conservatism reduces the manager's incentives and ability to manipulate accounting numbers and so reduces information asymmetry and the deadweight...

This paper studies the association between a firm's stock returns and subsequent top management changes. Consistent with internal monitoring of management, there is an inverse relation between the probability of a management change and a firm's share performance. This relation can result from...

We examine explanations for corporate financing-, dividend-, and compensation-policy issues. We document robust empirical relations among corporate policy decisions and various firm characteristics. Our evidence suggests contracting theories are more important in explaining cross-sectional...

This paper develops a simple integrated model of firm's earnings cash flows and accruals that generates serial and cross-correlation predictions for those series. The model assumes sales follow E random walk costs are either variable or fixed and traditional accounting working capital accruals....

This paper surveys the positive accounting research literature for a book of readings. It defines the nature and origins of positive research in accounting describes its contribution to practice and investigates reasons for the decline of normative theorizing in accounting. Relatively...

In this paper we compare two matched samples of 117 corporations whose auditors are and are not sued, to provide information on lawsuits. Lawsuits tend to be filed against auditors of client firms that have liquidity problems and poor stock price performance. There is little evidence of poorer...

We evaluate the literature that, for standard-setting purposes, assesses the usefulness of accounting numbers on their stock market value association. For several reasons we conclude the literature provides little insight for standard setting. First, the association criterion has no theory of...

GAAP provides management with discretion over accounting accruals. Management might use the discretion to improve earnings as a measure of firm performance, or engage in opportunistic management of discretionary accruals. Empirical research on accrual management requires a model to identify...

This paper explains how and why Anglo-American accounting and auditing, along with corporate governance and capital markets, evolved over many centuries in response to changes in market forces and technology. We first trace the development of practices that were included in U.S. corporate...

This paper examines the effect of accounting conservatism on firm-level investment during the 2007-2008 global financial crisis. Using a differences-in-differences design, we find that firms with less conservative financial reporting experienced a sharper decline in investment activity following...