We propose a methodology to incorporate risk measures based on economic fundamentals directly in the valuation model. Fundamentals-based risk adjustment in the residual income valuation model is captured by the covariance of excess ROE with market-wide factors. We simplify the covariance risk...

In tests of long-term performance, researchers are faced with several research design choices. For instance, when estimating abnormal returns, what specific firm characteristics should be used as matching criteria to select control firms? What weights should be placed on each characteristic?...

This paper develops a simple methodology based on the earnings response coefficient framework that allows decomposing realized returns into cash flow shocks and returns excluding cash flow shocks. I find that stocks with poor (good) accrual quality were on average subject to relatively lower...

Section 404 of the Sarbanes-Oxley Act (SOX) requires every company to report on the effectiveness of internal controls over financial reporting. Section 404 has arguably been the most controversial provision of SOX, with many registrants complaining that the high cost of compliance outweighs its...

Employee turnover is a significant cost for businesses and a key human capital metric, but firms do not disclose this measure. We examine whether turnover is informative about future firm performance using a large panel of turnover data extracted from employees’ online profiles. We find that...

Earnings growth dispersion contains information about trends in labor reallocation, unemployment change, and, ultimately, aggregate output. We find that initial macroeconomic estimates released by government statistical agencies do not fully incorporate this information. As a consequence,...

Heater, Nallareddy, and Venkatachalam (2021), hereafter HNV, find that aggregate merger and acquisition (M&A) activity explains the ability of aggregate accruals to predict market-wide returns. In this discussion, we delineate HNV’s contribution to accounting literature and provide a review of...