We propose and demonstrate a new method for validating proxies for accounting constructs. Our method consists of first identifying high-value observations, which are those statistically most responsible for generating a coefficient of interest, and second determining whether those observations...

Prior research finds little substantial discount for managing earnings to beat analysts' consensus forecasts, but at the earnings announcement date a minority of firms disclose balance sheet data needed to estimate abnormal accruals. We consider whether the market reward for beating the forecast...

We predict and find that accounting restatements that adversely affect shareholder wealth at the restating firm also induce share price declines among non-restating firms in the same industry. Peer firms with high industry-adjusted accruals experience a more pronounced share price decline than...

Does using earnings management to meet or beat analysts' forecasts decrease the market reward to achieving this target? We use changes in effective tax rates from the third to the fourth quarter to estimate managed earnings, following and extending Dhaliwal, Gleason and Mills (2004). We...

We predict and find that accounting restatements that adversely affect shareholder wealth at the restating firm also induce share price declines among non-restating firms in the same industry. These share price declines are unrelated to changes in analysts' earnings forecasts, but instead seem...

This paper studies the reliability of mandatory contingent liability disclosure. Contingent liabilities introduce substantial uncertainty about future earnings and the value of the firm, but little public data are available on the demands by external claimants. We use confidential audit...

We provide new evidence about how analysts incorporate and improve on management ETR forecasts. Quarterly ETR reporting under the integral method provides mandatory point-estimate forecasts by management, but firms must record certain “discrete” tax items fully in the quarter they occur,...

Analyst forecasting bias is frequently attributed to opportunism. We argue that opportunism is not a necessary condition for bias and propose a simple model, based on research in behavioral economics and psychology, of belief-based probability weighting. The model is used to develop benchmarks...

This paper examines whether the increased accounting guidance and reporting requirements of FIN 48 impact the adequacy and accuracy of tax reserves and the effect of auditor-provided tax services on tax reserves. While we do not find FIN 48 affected the adequacy or accuracy of tax reserves on...