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 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,...

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...

The trend toward continuous monitoring of automated business transactions by the internal audit function is growing as organizations seek to improve internal control. In this study, we demonstrate that continuous monitoring and the time horizon over which performance-contingent incentives are...

This study proposes and tests a series of related hypotheses concerning the impacts of institutions' monitoring on managers' investing financing operating activities as well as accounting and reporting the outcomes of such activities. In developing and testing the hypotheses, the study...

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...

This paper examines whether firms manipulating their reported financial results make suboptimal investment decisions. We examine fixed asset investments for a large sample of public companies during the 1978-2002 period and document that firms that manipulate their earnings - firms investigated...

Although an organization's environmental uncertainty may induce greater variability in reported earnings, managers have incentives to reduce this variability. The flexibility accorded by Generally Accepted Accounting Principles (GAAP) provides managers the means to accomplish this via exercising...