This paper examines the relationship between debt contracts and state contract law. We first develop an index to evaluate whether each state's law is favorable or unfavorable to lenders. We then analyze how the contract terms, the frequency of covenant violations, and the repercussions of...

In this paper we investigate why auditors fail to report material weaknesses in internal controls (ICMWs) in advance of misstated audited financial statements. To address this question, we analyze Public Company Accounting Oversight Board (PCAOB) proprietary data on audit clients' internal...

This paper examines whether analysts have an industry-level information advantage over managers when forecasting earnings. We argue that such an advantage is more likely to exist in industries where firm performance is more sensitive to industry-level external economic forces. We find that for...

This paper examines the relation between state contract law and the use of accounting information in debt contracts. Contract theory suggests that balance sheet-based covenants resolve debtholder-shareholder conflicts ex ante, whereas income statement-based covenants serve as trip-wires that...

Prior evidence shows a reduction in leverage after covenant violations, but we do not know whether covenants affect leverage before they are violated. In this study, we use an exogenous accounting-based shock to debt covenants that relaxed covenant tightness (SFAS 160) and examine whether...

While aggregate earnings should affect aggregate stock returns, standard portfolio theory predicts that the cross-sectional dispersion in firm-level earnings per se would not affect aggregate stock returns. Nonetheless, this paper documents that cross-sectional earnings dispersion is positively...

While aggregate earnings should affect aggregate stock returns, standard portfolio theory predicts that the cross-sectional dispersion in firm-level earnings would not affect aggregate stock returns. Nonetheless, this paper demonstrates a surprisingly robust relation between cross-sectional...

This article studies the effects of accounting fraud on the product market. The model presented in this article relies on the idea that a firm's financial statements and actions must be consistent with each other. If the firm is behaving fraudulently, insofar as its financial statements portray...

During March of 2021, a surprising narrative arose in the media – U.S. states not only did not incur decreases in tax collection during COVID-19, but many states saw substantial increases in collection. We consider this outcome from the perspective of progressive tax rates, income inequality,...