We show that the agency theory of overvalued equity (see Jensen, 2005) rather than investors' fixation on accruals explains the accrual anomaly, i.e., abnormal returns to an accrual trading strategy (see Sloan, 1996).Under the agency theory of overvalued equity, managers of overvalued firms are...

This article solves a model that links earnings quality to the equity risk premium in an infinite-horizon consumption CAPM economy. In the model, risk-averse traders hold diversified portfolios consisting of a risk-free bond and shares of many risky firms. When constructing their portfolios,...

This study analyzes the information conveyed by the restatements of financial reports. We argue that restatements contain news about the investment projects of the restating firms' competitors. This news causes competitors to revise their beliefs about the projects' value, and to modify their...

This paper examines the disclosure of intangible assets by 'high user' industrial firms in the Australian market subsequent to the introduction in 2005 of AASB 136 and AASB 138. Using a sample of ten large industrial firms with combined intangible assets of $37,758 million as at 2006, the paper...

This paper provides a rational explanation for earnings discontinuity in the context of the agency model. A company manager often possesses private information about the project's expected return. This information is valuable to the firm because early warning that a project is unlikely to...

This paper studies the relation between financial reporting quality and investment efficiency on a sample of 38,062 firm-year observations between 1980 and 2003. Financial reporting quality has been posited to improve investment efficiency, but to date there has been little empirical evidence to...

Overinvestment in certain firms or sectors induced by corporate fraud, where informed insiders strategically manipulate outside investors' beliefs by exaggerating financial performance and economic prospects, has been endemic historically, and has recently attracted much attention. Building on...

This paper examines whether firms cut Ramp;D spending in response to short-term earnings pressures and how equity markets interpret such behaviour. Failure to report positive earnings and earnings growth increases the probability of a subsequent cut in Ramp;D spending, while pressure to report...

This Professor Cunningham's Introduction to his edited collection of Warren Buffett's noted letters to shareholders of Berkshire Hathaway Inc. The collection was prepared for a symposium held at Cardozo Law School in New York City in 1997 and originally published in the Cardozo Law Review. The...

This study examines how accounting quality relates to firm-level capital investment efficiency. Our first hypothesis is that higher quality accounting enhances investment efficiency by reducing information asymmetry between managers and outside suppliers of capital. Our second hypothesis is that...