Lenders can transfer credit risk by purchasing credit default swaps (CDS), but holding swaps can diminish their incentives to monitor borrowers. Contracting theory predicts that lenders demand conservatism, in particular asymmetric timeliness of loss recognition, to effectively monitor...

This paper investigates how firms react strategically to investor sentiment via their disclosure policies in an attempt to influence the sentiment-induced biases in expectations. Proxying for sentiment using the Michigan Consumer Confidence Index, we show that during low-sentiment periods,...

In this paper we examine the effect of managerial ownership on financial reporting conservatism. Separation of ownership and control gives rise to agency problems between managers and shareholders. Financial reporting conservatism is one potential mechanism to address these agency problems. We...

When annual earnings are regressed on annual returns, the returns coefficient is higher when returns are negative. The difference between the coefficients of earnings on positive and negative returns is called asymmetric timeliness of earnings and, in the accounting literature, is used...

I find evidence consistent with managers manipulating real activities to avoid reporting annual losses: price discounts to temporarily increase sales, overproduction to report lower cost of goods sold, and reduction of discretionary expenditures to improve reported margins among firms reporting...

Gatekeepers in financial markets have the power to provide the institutional stability, fortitude and direction necessary for the development and the smooth functioning of capital markets. At the same time, they are often motivated by their own private incentives. This along with the trade-offs...

How do developments at lending institutions that alter the way they grant and monitor loans influence their borrowers' financial reporting quality (FRQ)? We examine this question by investigating the influence that privatizations of Chinese state banks (CSBs) had on the quality of their...

We examine the accrual choices of outsourcing firms with links to US congressional candidates during the 2004 elections, when corporate outsourcing was a major campaign issue. We find that politically-connected firms with more extensive outsourcing activities have more income-decreasing...

This paper investigates the effect of internal information asymmetry (hereafter IIA) within conglomerate firms on the quality of management forecasts and financial statements. We develop a novel measure to capture IIA between divisional managers and top corporate managers, computed as the...

Regulatory capital guidelines allow for loan loss reserves to be added back as capital. The evidence in this paper suggests that the influence of loan loss reserves added back as regulatory capital (hereafter referred to as “add-backs”) on bank risk cannot be explained by either economic...