In the Summer 2001 issue of Contemporary Accounting Research we published a paper arguing that, given a full set of forecasted financial statements, the value estimates from a residual income model and a discounted cash flow model should yield identical results. The reason prior empirical...

This paper examines why practitioners and researchers get different estimates of equity value when they use a discounted cash flow (CF) model versus a residual income (RI) model. Both models are derived from the same underlying assumption - that price is the present value of expected future net...

In the last few years the financial accounting model has been attacked on a number of fronts. Some argue that the model reports irrelevant information in today's knowledge-based economy, while others argue that the model's reporting discretion makes the results unreliable. Accruals allow the...

We examine communication in two-player games that represent simplified financial markets with asymmetric information. In each game, a seller knows the true quality of an asset while the potential buyer knows only the ex ante quality distribution. First we document the degree of adverse selection...

In this paper we model a firm's choice of how finely to report its segmental performance, given that its disclosures will be observed by both a rival firm and the capital market. We find that when competition with the rival is sufficiently severe, the firm's value is highest when its...

This paper models the value of conducting financial statement analysis (FSA) in the presence of an electronically traded fund (ETF) that gives exposure to the firm's systematic value. FSA is characterized as a costly process that yields a private signal about the idiosyncratic portion of a...

We examine corporate disclosure activity around seasoned equity offerings and its relation to stock prices. Beginning six months before the offering, our sample issuing firms dramatically increase their disclosure activity, particularly for the categories of disclosure over which firms have the...

We document how the effectiveness of an accruals-based trading strategy changes with the benchmark used to identify an extreme accrual. We measure “percent accruals” as accruals scaled by earnings, rather than total assets, and show that this seemingly small change produces a radically...

We examine corporate disclosure activity around seasoned equity offerings and its relation to stock prices. Beginning six months before the offering, our sample issuing firms dramatically increase their disclosure activity, particularly for the categories of disclosure over which firms have the...

In this paper we examine the relation between a firm's stock return and the earnings of other firms in the same industry, controlling for the firm's own earnings. We present a model in which the sign of this relation depends on the relative uncertainty there is about the size of the total...