In the context of the statutory tax rate reductions enacted in the Tax Reform Act of 1986, this paper investigates the degree to which capital market participants anticipate and correctly interpret temporary income effects of tax-motivated income shifting. We find evidence consistent with...

An event study demonstrates that disclosures of changes in deferred tax valuation allowances (VA) provide information beyond contemporaneous earnings reports. Prior research shows that, in setting VA, managers consider the extent that taxable income is available from various sources for the...

We present a multiperiod agency model of stock based executive compensation in a speculative stock market, where investors have heterogeneous beliefs and stock prices may deviate from underlying fundamentals and include a speculative option component. This component arises from the option to...

We examine whether rational investor responses to information uncertainty explain properties of and returns to accounting-based trading anomalies. We proxy for information uncertainty with two measures of earnings quality: the standard deviation of the residuals from a Dechow and Dichev [2002]...

This study describes a quot;cheap-talkquot; model in which sellers can credibly convey unverifiable information by choosing whether or not to exaggerate verifiable information. We find that unexaggerated claims can communicate favorable unverifiable information if buyers are not too likely to...

We examine competing explanations of the accruals anomaly, fixation and agency, using insider trading patterns and valuation measures. Quadratic regressions which control for confounding effects confirm an asymmetric relationship between trades and accruals concentrated on the selling side,...

We explore how the readability of annual reports varies with earnings management. Using the Fog Index to measure readability (Li 2008), and focusing on the management discussion and analysis section of the annual report (MD&A), we predict and find that firms most likely to have managed earnings...

In this paper we study the bias a manager introduces into reports of firm performance when the market is uncertain about the manager's objectives. Comparative static results suggest that the information content of the manager's report falls as the cost of biasing reports falls, or uncertainty...

On the basis of accounting and market data for firms and groups listed on German stock exchanges between 1997 and 2003, we show that the value relevance of Ramp;D information under German accounting standards can be superior to that provided by US-GAAP and IAS. The results, obtained while...

Managers have sufficient discretion under Generally Accepted Accounting Principles (GAAP) to adopt more or less conservative financial reporting policies. In this paper, we develop a signaling model to provide insight into managers' decisions to be conservative in their accounting. We provide...