Residual income valuation is based on the assumption that the clean surplus relation holds. As pointed out by Ohlson (2000), among others, the standard clean surplus relation is frequently violated. Moreover, standard residual income valuation models rest on the implicit assumption that future...

We study the consequences of mandatory adoption of International Financial Reporting Standards for earnings quality. On transitioning from local GAAP to IFRS, firms can make strategic balance sheet adjustments that in turn affect future reported earnings. We predict that earnings quality after...

Under accrual accounting, earnings add to shareholders' equity. Cash flow generated by a business has no effect on the book value of shareholders' equity but reduces the book value of net assets employed in business operations. In short, accrual accounting rules prescribe that earnings add to...

Recent years have seen a sharp decline in the use of balance sheet-based covenants in private debt contracts. I hypothesize that changes in accounting standards can explain part of this decline. Standard setting has shifted towards a “balance sheet approach”, which I predict has made the...

Over the past years there has been increasing interest in the informational importance of the differences between accounting or book income and taxable income. This subject, known as book-tax differences (BTDs), involves various aspects, mainly the motives for these differences, the potential...

We discuss the accounting rules that apply to reporting a U.S. company's international operations. We use examples to illustrate diversity in accounting and offer caveats for policy makers, standard setters, analysts, and researchers regarding their interpretation and use of financial accounting...

Over the last decade, a large body of tax accounting literature on the association between book-tax conformity (BTC)/book-tax differences (BTD) and firms' opportunistic reporting behavior has emerged. Yet, existing empirical evidence on the questions whether increased book-tax conformity...

We evaluate sell-side equity analysts' multiyear forecasted income statements, balance sheets and cash flow statements, and the profitability, efficiency and leverage ratios that they imply. Using both small- sample data extracted manually from Investext PDFs, and large-sample data taken from...