markets for pollution control when firms are noncompliant the problem of noncompliance and enforcement in transferable discharge permit tdp markets has not received much attention this paper examines the consequences of noncompliance for a tdp market given fairly general assumptions about the characteristics of the enforcement policy in place the analysis reveals that when firms are noncompliant tdp markets retain their efficiency property only under some fairly stringent conditions the effect of noncompliance on the equilibrium permit price raises some important questions about the ability of a tdp market to achieve and remain in equilibrium when firms are noncompliant

exploiting ergodicity in forecasts of corporate profitability abstract theory suggests that competition tends to equalize profit rates through the process of capital reallocation and numerous studies have confirmed that profit rates are indeed persistent and mean reverting recent empirical evidence further shows that fluctuations in the profitability of surviving corporations are well approximated by a stationary laplace distribution here we show that a parsimonious diffusion process of corporate profitability that accounts for all three features of the data achieves better out of sample forecasting performance across different time horizons than previously suggested time series and cross sectional models as a consequence of replicating the empirical distribution of profit rates the model prescribes a particular strength or speed for the mean reversion of all returns which leads to superior forecasts of individual time series when we exploit information from the cross sectional collection of firms the new model should appeal to managers analysts investors and other groups of corporate stakeholders who are interested in accurate forecasts of profitability to the extent that mean reversion in profitability is the source of predictable variation in earnings our approach can also be used in forecasts of earnings and is thus useful for firm valuation

implications of power when the ceo can pressure the cfo to bias reports abstract building on archival anecdotal and survey evidence on managers roles in accounting manipulations i develop an agency model to examine the effects of a ceo s power to pressure a cfo to bias a performance measure like earnings this power has implications for incentive compensation reporting quality firm value and information rents predictions from the model provide potential explanations for the differing results from recent empirical studies on the impact of regulatory interventions like sox and the extent to which the ceo s or cfo s incentives significantly impact on earnings management the model also identifies conditions under which either a powerful or a non powerful ceo can extract rents which can help explain mixed empirical results on the association between ceo power and excessive compensation

evidence that the zero earnings discontinuity has disappeared abstract discontinuities in earnings distributions at zero have been widely cited as evidence of earnings management but not without controversy recent research suggests discontinuities may be mere artifacts of certain research design choices we find that the well known zero earnings discontinuity disappears soon after passage of the sarbanes oxley act sox and has not returned we also find that neither the discontinuity nor its disappearance require the effects of widely cited alternative non earnings management explanations for the zero earnings discontinuity

what s driving energy efficient appliance label awareness and purchase propensity the eu appliance energy consumption labeling scheme is a key component of efforts to increase the diffusion of energy efficient household appliances in this paper the determinants of consumer knowledge of the energy label for household appliances and the choice of class a energy efficient appliances are jointly estimated using data from a large survey of more than 20 000 german households the results for five major appliances suggest that lack of knowledge of the energy label can generate considerable bias in both estimates of rates of uptake of class a appliances and in estimates of the underlying determinants of choice of class a appliance simulations of the choice to purchase a class a appliance given knowledge of the labeling framework reveal that residence characteristics and in several cases regional electricity prices strongly increase the propensity to purchase a class a appliance but socio economic characteristics have surprisingly little impact on appliance energy class choice

founders heirs and corporate opacity in the united states abstract we argue that information about firm activities can vary substantially in the presence of founder or heir ownership thereby influencing the risks borne by minority investors we explore two hypotheses with regard to these controlling shareholders and corporate transparency focusing on their role as monitor in place and their potential to exploit firm opacity to accrue private benefits of control to test these notions we create an opacity index that ranks the relative transparency of the two thousand largest industrial us firms and find founder and heir ownership in 22 and 25 of these firms respectively our analysis indicates that in large publicly traded companies both founder and heir firms are significantly more opaque than diffuse shareholder firms we also find that founder and heir controlled firms exhibit a negative relation to performance in all but the most transparent firms surprisingly additional tests reveal that concerns about divergences in ownership versus control management type dual class shares and board influence appear to be substantially less important than corporate opacity in explaining the performance impacts of founder and heir control finally we decompose corporate opacity into disclosure and market scrutiny components finding that the disclosure quality component appears to be of greater importance to investors however irrespective of whether these controlling shareholders create or stay in the firm because of corporate opacity our analysis suggests that founders and heirs in large publicly traded firms exploit opacity to extract private benefits at the expense of minority investors

earnings management erroneous inferences based on earnings frequency distributions a vast literature following hayn 1995 and burgstahler and dichev 1997 attributed the so called discontinuities in earnings distributions around zero to earnings management despite recent evidence that these discontinuities are likely caused by other factors researchers and teachers continue to point to the shapes of these distributions as evidence of earnings management we provide three sets of further evidence that these discontinuities are likely caused by factors other than earnings management 1 we provide as an example a detailed analysis of the severe effects of sample selection in a recent study this study erroneously concludes that the shape of an earnings distribution is evidence of earnings management 2 we provide a simple explanation for the shape of the earnings distribution that is most often cited as evidence of earnings management the relation between earnings and prices differs with the magnitude and the sign of earnings and 3 we provide further examples that support the main point of our paper evidence beyond the mere shape of a distribution must be brought to bear before researchers can draw conclusions regarding the presence absence of earnings management

debt covenant violation and manipulation of accruals abstract this paper examines the abnormal accruals of a sample of 94 firms that reported debt covenant violations in annual reports we expect debt covenant restrictions to influence accounting choices in the year preceding and the year of violation time series and cross sectional models are used to estimate normal accruals in the year prior to violation both models indicate that abnormal total and working capital accruals are significantly positive in the year of violation there is evidence of positive abnormal working capital accruals after controlling for management changes and auditor going concern qualifications

emissions variability in tradable permit markets with imperfect enforcement and banking abstract in this laboratory experiment on emissions trading subjects face exogenous random emissions shocks after making production and emission control plans in some sessions subjects can bank their unused permits for future use after a reconciliation trading period following the shock realization subjects report their emissions to the regulatory authority and are placed in different inspection groups depending on their compliance history we identify important interactions between banking compliance and enforcement banking smoothes out the price variability arising from imperfect emissions control price stability comes at a cost however since noncompliance and emissions are significantly greater when banking is allowed

noncompliant firms in transferable discharge permit markets some extensions abstract this paper extends the results of previous research on transferable discharge permit tdp markets with noncompliant firms to make a specific comparison between standards and tdp systems when regulatory authorities are unable to achieve full compliance particular attention is given to the importance of the shape of the penalty function facing noncompliant firms the analysis indicates that under plausible penalty functions tdp markets may allow more pollution or a higher fraction of regulated firms out of compliance these results highlight the importance of implementation in the success of pollution control strategies relying on tdp markets

gdp management to meet or beat growth targets abstract we apply the discontinuity methodology from the accounting literature to a political economy setting of gdp reporting and examine whether chinese local governments manage regional gdp numbers we find strong evidence of discontinuities around zero in the distribution of actual minus target gdp growth rates the frequencies of just meeting or beating gdp growth targets are about five four times the frequencies of just missing targets at the prefecture province level the results are stronger for governors with longer tenures and those without political connections to higher level officials as well as for local governments with more resources under their control

earnings management behaviors under different monitoring mechanisms the case of islamic and conventional banks abstract we investigate the impact of organizational religiosity on the earnings quality of listed banks in the middle east and north africa region we analyze islamic banking institutions which operate within strict religious norms and extended accountability constraints and compare them with their conventional counterparts during 2008 2013 we find that islamic banks are less likely to manage earnings and that they adopt more conservative accounting policies based on these findings we argue that religious norms and moral accountability constraints in these organizations have a significant impact on financial reporting quality and agency costs which have implications for both regulators and market participants

earnings management to avoid earnings decreases and losses this paper provides evidence that firms manage reported earnings to avoid earnings decreases and losses specifically in cross sectional distributions of earnings changes and earnings we lind unusually low frequencies of small decreases in earnings and small losscs and unusually high frequencies of small increases in earnings and small positive income we find evidence that two components of earnings cash flow from operations and changes in working capital are used to achieve increases in earnings we present two theories based on stakeholder use of information processing heuristics and prospect theory about the motivation for avoidance of earnings decreases and losses

performance standards and optimal incentives abstract this paper analyzes incentive design when agents effort influences an uncertain output governed by a random process with semi heavy tails we find that the second best incentive contract pays an output increasing but bounded fee with a shape resembling performance standard contracts that pay a fixed salary plus a capped bonus in this contract the pay performance sensitivity around the standard increases decreases with the frequency with which performance is measured and with the kurtosis volatility parameter of the performance probability distribution we also find that the optimal maximum bonus increases with volatility but decreases with the kurtosis parameter of the performance distribution

a temporal analysis of earnings surprises profits versus losses i show that median earnings surprise has shifted rightward from small negative miss analyst estimates by a small amount to zero meet analyst estimates exactly to small positive beat analyst estimates by a small amount during the 16 years 1984 to 1999 i show that a rightward temporal shift in median surprise from negative to positive describes earnings but neither profits nor losses median profit surprise shifts within the positive quadrant from zero to one cent per share median loss surprise shifts within the negative quadrant from extreme negative about 33 cents per share to zero i show that the median surprise for profits exceeds that for losses in every year i document significant positive temporal trends in both meet and beat analyst estimates for both profits and losses but i find a greater frequency of profits that either meet or beat analyst estimates in every year i find a significant positive temporal trend in positive profits that are a little bit of good news and a significant negative temporal trend in managers who report losses that are an extreme amount of bad news my results are robust to the four internal validity threats i consider namely temporal changes in 1 analyst forecast accuracy 2 the mix of earnings of one sign preceded by earnings of another sign four quarters ago 3 the timeliness of the most recent analyst forecast and 4 the i b e s definition of actual earnings i find that managers of growth firms are relatively more likely than managers of value firms to report good news profits i show that when they do report positive profit surprises managers of growth firms are more likely to report a little bit of good news in every year

industry window dressing we explore a new mechanism by which investors take correlated shortcuts and present evidence that managers using sales management take advantage of these shortcuts specifically we exploit a regulatory provision wherein a firm s primary industry is determined by the highest sales segment exploiting this regulation we provide evidence that investors classify operationally nearly identical firms as starkly different depending on their placement around this sales cutoff moreover managers appear to exploit this by manipulating sales to be just over the cutoff in favorable industries further evidence suggests that managers engage in activities to realize large tangible benefits from this opportunistic action

performance shocks and misreporting we propose a parsimonious stochastic model of reported earnings that links misreporting to performance shocks our main analytical prediction is that misreporting leads to a negative second order autocorrelation in the residuals from a regression of current earnings on lagged earnings we also propose a stylized dynamic model of earnings manipulation and demonstrate that both earnings smoothing and target beating considerations result in the same predictions of negative second order autocorrelations empirically we find that the distribution of this measure is asymmetric around zero with 27 of the firms having significantly negative estimates using this measure we specify a methodology to estimate the intensity of misreporting and to create estimates of unmanipulated earnings our estimates of unmanipulated earnings are more correlated with contemporaneous returns and have higher volatility than reported earnings with respect to economic magnitude we find that in absolute terms median misreporting is 0 7 of total assets moreover firms in our sample subject to sec aaers have significantly higher estimates of manipulation intensity

intra year shifts in the earnings distribution and their implications for earnings management abstract previous findings that upward earnings management causes a kink in the distribution of annual earnings cannot be verified without a well specified benchmark for pre managed annual earnings we model shifts in the cumulative earnings distribution during the fourth quarter to explain the kink s formation logistic regression results show that compared to a control group a high proportion of firms with small cumulative profits or losses at the beginning of the fourth quarter report small annual profits rather than small annual losses this suggests that upward earnings management causes the kink and indicates which firms are likely to manage earnings upward

a positive model of earnings forecasts top down versus bottom up this article analyzes the behavior of two groups of corporate earnings forecasters analysts who follow individual company fortunes and market strategists who predict earnings for various company aggregates using data for two market indices the s p 500 and the dow jones industrial average we document that bottom up forecasts are systematically more optimistic than top down forecasts made by strategists this difference is not driven by the difference in the forecast target this finding may be explained by the incentives that analysts face and or by cognitive bias

accounting measurement price earnings ratio and the information content of security prices a number of papers for example beaver lambert and morse 1980 beaver lambert and ryan 1987 collins kothari and rayburn 1987 and freeman 1987 have documented that stock prices lead accounting earnings these investigations have led to the conclusions that prices provide information about earnings ahead of time and that earnings capture events that affect security prices with a lag the study of p e ratios has supported those conclusions and also produced additional insights beaver and morse 1978 have shown that pie ratios not only predict future earnings changes but they also identify transitory aspects of current earnings investors utilize other information in setting prices which provides both a prediction of future earnings and an indication of whether current earnings are representative of future earnings thus a comparison of price to earnings in a p e calculation can indicate the extent to which current earnings are transitory 1 in this paper we show that information in prices that leads future earnings is contained in financial statements while accrual accounting

pooling of uncertainty enforcing tradable permits regulation when emissions are stochastic an under appreciated advantage of tradable permits regulation is its ability to create better decision making when emissions are stochastic in general the distribution of stochastic actual emissions around intended emissions results in over or under compliance permit tradability reduces the extent to which actual aggregate emissions deviate from regulatory targets by giving firms an additional mechanism for responding to uncertainty we construct a two period model of permit regulation with ex post enforcement to demonstrate how the permit market distributes uncertainty and to illustrate the importance of expectations toward permit market outcomes

is there an energy paradox in fuel economy a note on the role of consumer heterogeneity and sorting bias abstract from the previous literature it can be found that consumers tend to undervalue discounted future energy costs in their purchase decisions for energy using durables we show that this finding could in part result from ignoring consumer heterogeneity in empirical analyses as opposed to true undervaluation

competition or manipulation an empirical evidence of determinants of the earnings persistence of the u s banks we examine the impact of competition on bank earnings persistence by exploiting a natural experiment following interstate banking deregulation that increased bank competition we find that bank earnings adjustment speed increases after their states implement the deregulation this relationship is weakened however with the increase of bank s abilities to sustain earnings as reflected in size diversification managerial efficiency and safety we further find that the impact of compeititon on bank earnings adjustment speed is direct but not indirectly through the channel of earnings management

the asymmetric relationship between executive earnings management and compensation a panel threshold regression approach abstractprior research shows that chief executive officers ceos are rewarded for their earnings management we re examine this issue using a panel threshold regression approach which allows the effect of earnings management on the ceo compensation to change across the level of earnings management and ceo compensation our results show that the effect of ceos discretionary accounting choices on their compensation is not homogeneous across various degrees of earnings management and compensation in particular for firms with moderate inordinate levels of earnings management and ceo compensation earnings management is rewarded penalized

empirical research on accounting choice abstract we review research from the 1990s that examines the determinants and consequences of accounting choice structuring our analysis around the three types of market imperfections that influence managers choices agency costs information asymmetries and externalities affecting non contracting parties we conclude that research in the 1990s made limited progress in expanding our understanding of accounting choice because of limitations in research design and a focus on replication rather than extension of current knowledge we discuss opportunities for future research recommending the exploration of the economic implications of accounting choice by addressing the three different reasons why accounting matters

the effect of cash flow forecasts on accrual quality and benchmark beating when analysts provide forecasts of both earnings and operating cash flow they also implicitly provide a forecast of total operating accruals we posit that this increases the transparency and the expected costs of accrual manipulations used to manage earnings as a consequence we predict and find that accrual quality improves and firms propensity to meet or beat earnings benchmarks declines following the provision of cash flow forecasts we also predict and find that firms turn to other benchmark beating mechanisms such as real activities manipulation and earnings guidance in response to the provision of cash flow forecasts

self reporting and the design of policies for regulating stochastic pollution abstract existing environmental regulations frequently require firms to self report their compliance status to regulatory agencies using a principal agent framework i derive and compare incentive compatible regulatory policies with and without self reporting i find the firm needs to be audited less often when self reporting is required but punished more often the sign and magnitude of the gains from self reporting depend on the relative size of audit and sanction costs the accuracy of the regulator s monitoring technology and the desired level of abatement effort

investment dynamics and earnings return properties a structural approach we propose the standard neoclassical model of investment under uncertainty with short run adjustment frictions as a benchmark for earnings return patterns absent accounting influences we show that our proposed benchmark generates a wide range of earnings return patterns documented in accounting research notably our model generates a concave earnings return relation similar to that of basu 1997 and predicts that the earnings return concavity increases with the volatility of firms underlying shock processes and decreases with the level of firms investments we find strong empirical support for these predictions overall our evidence suggests that our proposed benchmark is useful for understanding the joint dynamics of variables of interest to accounting research e g earnings returns investment market to book absent accounting influences a necessary precondition for inferring the effects of accounting from these dynamics

biased forecasts or biased earnings the role of reported earnings in explaining apparent bias and over underreaction in analysts earnings forecasts the extensive literature that investigates whether analysts earnings forecasts are biased and or inefficient has produced conflicting evidence and no definitive answers to either question this paper shows how two relatively small but statistically influential asymmetries in the tail and the middle of distributions of analysts forecast errors can exaggerate or obscure evidence consistent with analyst bias and inefficiency leading to inconsistent inferences we identify an empirical link between firms recognition of unexpected accruals and the presence of the two asymmetries in distributions of forecast errors that suggests that firm reporting choices play an important role in determining analysts forecast errors r 2003 elsevier b v all rights reserved

what does ceos pay for performance reveal about shareholders attitude toward earnings overstatements if overstatements were a symptom of the agency conflict pay for performance sensitivities should have increased in response to the additional penalties for misreporting imposed by sox our finding of their decrease is inconsistent with the view that overstatements were an unintended consequence of incentive pay prior to 2002 to corroborate our interpretation we show that i ceo pay for performance sensitivities are higher among firms whose shareholders stand to benefit from overstatements ii this cross sectional relationship weakens significantly after sox and iii the within firm decrease in pay for performance sensitivity is most pronounced among firms with high pre sox shareholder benefits from overstatements

random wastes imperfect monitoring and environmental quality standards abstract this paper considers a firm s choice of optimal pollution abatement strategy in an environment where pollution licences are purchased through a market and a fine is levied for pollution in excess of the licences held the pollution associated with any level of abatement is stochastic and the authority monitors pollution via a random sample of observations firms choose cost minimising values for the mean and variance of emissions and the authority selects its sample size and the number of licences issued to achieve an exogenous level of environmental quality with abatement costs and monitoring costs at a minimum level

consistency in meeting or beating earnings expectations and management earnings forecasts abstract this paper provides evidence that firms that have consistently met or beaten analysts earnings expectations mbe provide more frequent bad news management forecasts than firms with no established string of mbe particularly when existing analyst forecasts are optimistic this suggests that firms with a consistent mbe record are more likely to guide analysts expectations downward to avoid breaking the consistency subsequent analyst forecast revisions following bad news management forecasts issued by these firms are dampened implying that analysts suspect that these forecasts may be opportunistic the relation between management forecasts and mbe consistency is stronger after regulation fd

initial evidence on the role of accounting earnings in the bond market we document that 1 the incidence of bond trade increases during the days surrounding earnings announcements 2 there is a bond price reaction to the announcement of earnings and 3 there is a positive association between annual bond returns and both annual changes in earnings and annual analysts forecast errors all of these effects are larger when earnings convey bad news or when the underlying bond is more risky taken together our results suggest that the nonlinear payoff structure of bond securities affects the role of accounting earnings in the bond market

does managerial sentiment affect accrual estimates evidence from the banking industry abstract we examine whether managerial sentiment is associated with errors in accrual estimates using public banks we find 1 managerial sentiment is negatively associated with loan loss provision estimates 2 future charge offs per dollar of provision are positively associated with sentiment when the provision is estimated and 3 the effects of sentiment are greater for firms with more uncertain charge offs results are similar for private banks suggesting accrual manipulation related to capital market incentives is unlikely to explain the results although economic fundamentals explain most of the variation in the provision we find sentiment has an incremental and economically meaningful effect

applying digital analysis to detect fraud an empirical analysis of us marine industry firms have tendency to window dress their financial statements by reporting earnings to achieve reference points represented by n 10 k such practice of reporting rounded earnings is likely due to 1 firms may believe that investors perceive a reported earnings of 1 99 million to be significantly less than 2 0 million and or 2 contracts between firms and stakeholders are likely to express earnings in round numbers auditors have employed more sophisticated digital analysis such as benford s law as part of their fraud detection processes this study investigated the window dressing behaviour among firms in the us marine industry the findings of the study suggest that window dressing is a significant practice among the marine firms however the extent of the pervasiveness of such behaviour is less severe among marine firms than among all publicly listed firms in the entire us economy suggesting that the quality of financial statements of marine companies is higher than the overall population of

the induced innovation hypothesis and energy saving technological change we develop a methodology for testing hicks s induced innovation hypothesis by estimating a product characteristics model of energy using consumer durables augmenting the hypothesis to allow for the ine uence of government regulations for the products we explored the evidence suggests that i the rate of overall innovation was independent of energy prices and regulations ii the direction of innovation was responsive to energy price changes for some products but not for others iii energy price changes induced changes in the subset of technically feasible models that were offered for sale iv this responsiveness increased substantially during the period after energy efficiency product labeling was required and v nonetheless a sizable portion of efficiency improvements were autonomous

household energy consumption versus income and relative standard of living a panel approach our fundamental premise is that energy consumption at the household level is a key indicator of standard of living we employ state of the art panel cointegration techniques to evaluate the nature of the relationship between income measures and energy consumption measures for seven east indian ocean countries the general finding is that income and household electricity consumption are not cointegrated given this finding we conclude that standard of living measures that rely on income measures and do not include household level energy consumption information will necessarily miss important indications of both levels and changes of standard of living

factors associated with the year end decline in working capital working capital is an important indicator of firm operational efficiency all else being equal lower levels signal greater efficiency managers are thus likely to be motivated to report lower levels of working capital at times of greater external attention we find that working capital levels decrease in the fourth fiscal quarter significantly more than expected conditional on seasonal changes in economic activity the decrease subsequently reverses in the following first fiscal quarter evidence indicates that firms manage down year end working capital through transactions that increase year end operating cash flow and that firms spread this activity over all working capital accounts finally the temporary decrease in year end working capital is correlated with compensation benchmarks and analysts annual cash flow forecasts the temporary drop is also more pronounced for firms with industry dominance this paper was accepted by mary barth accounting

two sided learning and the ratchet principle i study a class of continuous time games of learning and imperfect monitoring a long run player and a market share a common prior about the initial value of a gaussian hidden state and learn about its subsequent values by observing a noisy public signal the long run player can nevertheless control the evolution of this signal and thus affect the market s belief the public signal has an additive structure and noise is brownian i derive conditions for an ordinary differential equation to characterize equilibrium behavior in which the long run player s actions depend on the history of the game only through the market s correct belief using these conditions i demonstrate the existence of pure strategy equilibria in markov strategies for settings in which the long run player s flow utility is nonlinear the central finding is a learning driven ratchet principle affecting incentives i illustrate the economic implications of this principle in applications to monetary policy earnings management and career concerns

earnings management and accounting income aggregation quarterly earnings allow aggregation into annual earnings in four different ways fiscal year earnings is one measure of annual earnings the others being earnings for annual periods ending at interim quarter ends we investigate earnings management in fiscal year earnings relative to these alternative measures of firms annual earnings we confirm prior findings in burgstahler and dichev 1997 earnings management to avoid earnings decreases and losses journal of accounting and economics 24 99 126 of discontinuities around zero and prior year earnings in histograms of earnings subsequent research questions whether these discontinuities are evidence of earnings management using histograms of our alternative annual earnings measures we offer evidence suggesting earnings management is responsible for the discontinuities

the information content of losses abstract this study hypothesizes that because shareholders have a liquidation option losses are not expected to perpetuate they are thus less informative than profits about the firm s future prospects the results are consistent with the hypothesis they also show that the documented increase in the earnings response coefficent as the cumulation period increases appears to be due exclusively to the effect of losses the liquidation option effect extends to profitable cases where earnings are low enough to make the option attractive alternating explanations for the low informativeness of losses such as mean reversal of earnings are not supported by the tests

the articulation of price earnings ratios and market to book ratios and the evaluation of growth this paper interprets the price earnings ratio pie and the marketto book ratio pib and describes how they articulate it also describes the role of book rate of return on equity the ratio of their denominators in the determination of the ratios and the relation between them although both are reported regularly there is not a common understanding of these issues for example the pie ratio has been interpreted as an earnings growth indicator cragg and malkiel 1982 and litzenberger and rao 1971 a risk measure ball 1978 and an earnings capitalization rate graham dodd and cottle 1962 boatsman and baskin 1981 and alford 1992 derivations based on the gordon 1962 model describe it as determined by return on equity beaver and morse 1978 show that this ratio indicates transitory earnings the molodovsky effect from molodovsky 1953 it has also been interpreted as an indicator of mispriced stocks basu 1977 and jaffee keim and westerfield 1989 and as a product of accounting principles craig johnson and joy 1987 the p b ratio received less academic attention until fama and french 1992 traditionally it was interpreted as indicating expected return on equity see for example graham dodd and cottle 1962 this interpretation is given expression in the standard formula reconciling price to book value in preinreich 1938 edwards and bell 1961 and peasnell 1982 for example like pie p b has been modeled as a growth

factors influencing willingness to pay for the energy star label abstract in the united states nearly 17 of greenhouse gas emissions come from residential energy use increases in energy efficiency for the residential sector can generate significant energy savings and emissions reductions consumer labels such as the us environmental protection agency s energy star promote conservation by providing consumers with information on energy usage for household appliances this study examines how the energy star label affects consumer preferences for refrigerators the results of an online survey of a national sample of adults suggest that consumers are on average willing to pay an extra 249 82 349 30 for a refrigerator that has been awarded the energy star label furthermore the results provide evidence that respondent willingness to pay was motivated by both private energy cost savings and public environmental benefits

what insiders know about future earnings and how they use it evidence from insider trades abstract this paper provides evidence that insiders possess and trade upon knowledge of specific and economically significant forthcoming accounting disclosures as long as 2 years prior to the disclosure stock sales by insiders increase three to nine quarters prior to a break in a string of consecutive increases in quarterly earnings insider stock sales are greater for growth firms before a longer period of declining earnings and when the earnings decline at the break is greater consistent with avoiding an established legal jeopardy there is little abnormal selling in the two quarters immediately prior to the break

information inefficiency and willingness to pay for energy efficient technology a stated preference approach for china energy label abstract the paper examines the extent to which consumers willingness to pay for energy efficient room air conditioners may be altered by correcting the information inefficiency on the china energy label the data are collected from a discrete choice experiment with two alternatives variable speed and constant speed room air conditioners characterized by attributes of brand purchase price and energy grade three versions of the questionnaires with choice sets differing only in energy consumption indicators were distributed randomly to 1602 potential consumers in nanjing china and a sample of 1569 was obtained after dropping missing data the analysis with multinomial and mixed logit models reveal that the price premium that consumers are willing to pay for a variable speed room ac over a constant speed room ac increases significantly when energy consumption information becomes comparable and additional energy related information is provided furthermore the impact of information on wtp varies under different energy saving scenarios it is suggested that china energy label should correct information inefficiency by adopting same energy indicators for room acs with different technologies and providing energy consumption information based on different climate zones

the rewards to meeting or beating earnings expectations abstract this paper finds that firms that meet or beat current analysts earnings expectations mbe enjoy a higher return over the quarter than firms with similar quarterly earnings forecast errors that fail to meet these expectations further such a premium to mbe although somewhat smaller exists in the cases where mbe is likely to have been achieved through earnings or expectations management the findings also indicate that the premium to mbe is a leading indicator of future performance this premium and its predictive ability are only marginally affected by whether the mbe is genuine or the result of earnings or expectations management

are hedge fund managers systematically misreporting or not a discontinuity or kink at zero in the hedge fund net return distribution has been interpreted as evidence of managers manipulating returns to avoid showing small losses instead we propose alternative explanations for this phenomenon in particular we show that incentive fees can mechanistically create a kink in the net return distribution this mechanism accounts for almost the entire kink observed in the large liquid long short equity style furthermore we show that asset illiquidity and the bounding of yields at zero can generate distribution discontinuities as well therefore we conclude that the observed hedge fund return discontinuities are not direct proof of manipulation

a model of industrial pollution in a stochastic environment abstract standard models of pollution abatement assume that pollution accumulation occurs in a deterministic pattern as a by product of the production process governmental intervention often occurs in the form of taxation or mandatory abatement controls to reduce inefficiency caused by incomplete markets in this paper we assume that the accumulation effect of pollution may be stochastic due for instance to the random absorption capacity of the ecosystem furthermore we assume that the level of pollution may vary with input use as well as output level we proceed to analyze properties of a policy for efficient social management of competitive firms which generate pollution

do hedge fund managers misreport returns evidence from the pooled distribution we find a significant discontinuity in the pooled distribution of monthly hedge fund returns the number of small gains far exceeds the number of small losses the dis continuity is present in live and defunct funds and funds of all ages suggesting that it is not caused by database biases the discontinuity is absent in the 3 months culminating in an audit suggesting it is not attributable to skillful loss avoidance the discontinuity disappears when using bimonthly returns indicating a reversal in fund performance following small gains this result suggests that the discontinuity is caused at least in part by temporarily overstated returns

corporate sponsored foundations and earnings management abstract this study examines the strategic use of corporate philanthropy programs to achieve financial reporting objectives corporate sponsored foundations allow managers to maintain stable levels of giving to charitable causes while providing substantial discretion as to the amount of contribution expense recorded on the income statement in any given period i find that firms reporting small earnings increases make income increasing discretionary foundation funding choices this result is associated with firms that have strong equity market incentives to manage earnings the evidence presented in this paper is consistent with firms using their charitable foundations as off balance sheet reserves

price convexity and skewness this paper develops a model in which investors who are prohibited from short selling agree to disagree on the precision of a publicly observed signal the model implies that the equilibrium price is a convex function of the public signal the model predicts that 1 the stock price reacts more to good news than to bad news 2 the skewness of stock returns is positively correlated with contemporaneous returns but negatively correlated with lagged returns 3 short sale constraints increase rather than decrease skewness and 4 disagreement about information precision increases skewness empirical tests conducted find supportive evidence for all these predictions

enforcement costs and the choice of policy instruments for controlling pollution i introduction when evaluating policy instruments for controlling pollution analysts generally agree that economic incentives are superior to direct controls in terms of minimizing abatement costs however when it comes to minimizing enforcement costs there is no such agreement some analysts such as freeman et al 1973 and anderson et al 1977 argue that economic incentives would be much easier to enforce than direct controls while others such as drayton 1978 argue that they would be virtually unenforceable the debate typically centers on technical difficulties in continuously monitoring emissions and to a lesser extent on political and legal issues related to the assessment of penalties 1 an issue that has not been examined is whether there are economic reasons for enforcement costs to vary across policy instruments although there is now a sizable economic literature on the problem of noncompliance with pollution control policies there have been no attempts to formally compare enforcement costs across policy instruments 2 accordingly the purpose of this note is to examine whether there are economic grounds for arguing that enforcement costs would be lower for economic incentives than direct controls 3 the policy instruments compared are marketable permits or emissions taxes and uniform standards the instruments are compared in a setting where the penalty schedule is previously specified by some judicial or legislative body and the regulator s enforcement policy is limited to the choice of audit frequency the analysis is based on the premise that for any policy instrument that targets emissions the regulator will have to periodically monitor emissions and assess penalties for noncompliance the relevant question then is whether less frequent monitoring would be required to ensure compliance with economic incentives casual analysis suggests this should be the case economic incentives minimize aggregate abatement costs and lower abatement costs imply lower costs to firms of complying this should imply in turn that less stringent enforcement is needed to achieve compliance this argument although intuitively appealing is flawed using a simple model of pollution control with costly enforcement i show that enforcement costs narrowly defined may be higher for economic incentives for purposes of exposition the result is established in a setting where the regulator ensures each firm is fully compliant however as shown in the appendix the result generalizes to the more realistic setting where firms are partially compliant ii the model consider a group of n risk neutral firms emitting a single pollutant for simplicity the damages from the pollutant are assumed to depend only on total emissions each firm s abatement costs are given by a strictly convex function c sub i x sub i that is decreasing in emissions x sub i the firm s maximum emissions level is denoted mathematical expression omitted and is defined by mathematical expression omitted with probability p sub i a regulator audits each firm and measures its emissions if the regulator finds the firm s actual emissions x sub i exceed its allowed emissions s sub i the firm is assessed a fine of f x sub i s sub i as is common in the literature on enforcement i assume the fine schedule is previously specified e g by a legislative body 4 thus the regulator can choose the probability with which it audits firms but not the fine it assesses for noncompliance i assume the fine schedule is such that both the total fine and marginal fine are increasing in the violation size x sub i s sub i f prime is greater than 0 and f prime prime is grater than 0 because the regulator is assumed to ensure full compliance no violations occur and no fines are collected therefore enforcement costs consist solely of auditing or monitoring costs to simplify the analysis the cost of conducting an audit a is assumed to be the same across firms

do bright line earnings surprises really affect stock price reactions several influential studies have concluded that earnings surprises just to the right or to the left of a hypothesized bright line produce distinct price reactions compared with surrounding earnings surprises because they convey special meaning in this study we examine whether previous inferences of asymmetric stock price reactions to bright line surprises are observed when empirical tests are designed to be consistent with a rational expectations equilibrium focusing on a small range of earnings surprises around hypothesized bright lines we find no evidence of asymmetric price reactions once investors ex ante expectation of bias in earnings surprises is controlled results from additional tests yield support for the external validity of the theoretical framework underlying our bright line pricing tests our findings suggest simple refinements to traditional bins comparison and regression tests for asymmetric price reactions to bright line earnings surprises which account for necessary conditions imp

the allowance for uncollectible accounts conservatism and earnings management we study the interrelation between conservatism and earnings management by examining the allowance for uncollectible accounts and its income statement counterpart bad debt expense we find that the allowance is conservative and that it has become more conservative over time conservatism may however facilitate earnings management we find that firms manage bad debt expense downward and even record income increasing bad debt expense to meet or beat analysts earnings forecasts and that conservatism accentuates the extent to which firms manage bad debt expense further we find that firms manage bad debt expense downward by drawing down previously recorded over accruals of bad debt expense that have accumulated on the balance sheet an implication of our study is that tighter limits on the amount by which firms are permitted to understate net assets may reduce their ability to manage earnings

financial analysts forecast revisions and managers reporting behavior abstract this paper studies an analyst s forecasting strategy and a manager s earnings management policy when reporting earnings the manager trades off the disutility he obtains from falling short of the analyst s forecast against the costs of manipulating earnings the model predicts that i the analyst s forecast exceeds median reported earnings ii the analyst is more likely to revise his forecast downward than upward iii mean and median forecast errors are larger in magnitude when the analyst has less precise information and iv the stock market is on average more sensitive to reported earnings than to the analyst s forecasts

optimal punishment schemes with state dependent preferences i introduction it is well known in the economics of crime literature that both the certainty and severity of punishment can be manipulated to deter criminal behavior as polinsky and shavell 1979 show when punishment takes the form of a fine the optimal combination of the probability of punishment and the magnitude of the fine depends on the risk attitudes of offenders and on the costs of catching and convicting offenders this paper examines how the optimal combination of certainty and severity are affected if offenders preferences are state dependent state dependent utility is commonly used in situations in which the state of the world affects how well individuals are able to enjoy the consumption of their wealth death of the individual is an obvious example and hirschleifer and riley 1992 also suggest the death of a child the loss of use of a limb or the loss of a precious heirloom there are many reasons to add conviction for a crime to this list 1 first if the individual is sent to prison his consumption opportunities are obviously diminished even without a prison sentence though utility might best be modeled as being state dependent for utility to be state independent there must exist some decrease in wealth that has the same effect on the utility function as being convicted of the crime if the offender is risk averse and has state independent utility a loss of wealth reduces the level of utility but increases marginal utility it is easy to imagine why being convicted of a crime would reduce the level of utility but it is difficult to imagine why it would increase the individual s marginal utility of wealth for example drivers who are caught speeding are angered beyond the level consistent with the expected loss of income but this additional anger does not lead to an additional increase in the marginal utility of wealth in addition to these considerations lott 1992a b provides evidence that conviction leads to increased divorce rates and constrained job opportunities the former reduces the level of utility but is unlikely to increase marginal utility and should therefore be modeled as a shift in the utility function constrained job opportunities reduce both income and job satisfaction and the reduction in job satisfaction is again best modeled as a shift in the utility function as a final argument supporting the use of state dependent preferences neilson and winter 1997 show that if offenders preferences are state dependent it is possible for them to be both risk averse and more sensitive to changes in the certainty of punishment than to proportional changes in the severity of punishment becker 1968 notes this empirical finding 2 and concludes that if offenders are expected utility maximizers they cannot be risk averse 3 polinsky and shavell 1979 demonstrate that when offenders are risk averse and have state independent utility increasing the fine increases social loss by increasing the amount of risk borne by offenders consequently in the extreme case in which it is costless to catch and convict offenders the optimal policy has a relatively low fine but punishes criminals with probability one this paper shows that if preferences are state dependent there is an additional social cost associated with setting a high probability of punishment because it makes it more likely that criminals are on their lower utility functions to avoid the additional social cost the certainty of punishment should be reduced ii the model the model presented below is identical to that in polinsky and shavell 1979 except for the addition of state dependent preferences identical individuals choose whether to commit a crime or not 4 gains from crime are random with probability q the individual gains a and with probability 1 q he gains b greater than a even though the gains are random it is assumed that the individual knows the true value of the gain before any decision must be made

endogenous information flows and the clustering of announcements we consider the strategic timing of information releases in a dynamic disclosure model because investors don t know whether or when the firm is informed the firm will not necessarily disclose immediately we show that bad market news can trigger the immediate release of information by firms conversely good market news slows the release of information by firms thus our model generates clustering of negative announcements surprisingly this result holds only when firms can preemptively disclose their own information prior to the arrival of external information these results have implications for conditional variance and skewness of stock returns jel d21 d83 g12 g14 l11

discretionary accounting choices and the predictive ability of accruals with respect to future cash flows using a sample of restatement firms and a meet or beat model to classify firms as making discretionary accounting choices for opportunistic meet or beat op mb reasons we show that originally reported earnings and accrual components are less predictive of future cash flows relative to the restated numbers we find the opposite is true for firms classified as making discretionary accounting choices for non op mb reasons we consider a number of competing explanations for these latter results our findings are most consistent with the informational hypothesis weakly consistent with conservative motivated efficient contracting hypotheses but inconsistent with opportunistic contracting and misapplication errors of gaap explanations

information disclosure policies evidence from the electricity industry i introduction developed nations environmental policies have evolved substantially in the past several decades early pollution control programs involved command and control approaches policies then frequently included pollution charges tradable permits and other market based instruments most recently a third wave of environmental policy has emerged that emphasizes information provision as an integral part of the risk mitigation strategy here government regulation is replaced or augmented by publicly provided information presumed to assist more cost effective private market and legal forces common examples include the toxics release inventory lead paint disclosures drinking water quality notices and eco labels the empirical effects of such programs however remain largely undetermined this paper examines the impact of a prominent mandatory disclosure program on the fuel mix percentages of large electric utility corporations the prominence of mandatory information policies is not restricted to environmental arenas for example developed countries equity markets generally require firm level financial information provision in many countries agricultural goods require country of origin and other health labels domestic colleges and universities are required by law to inform current and prospective students of crime statistics equity data and performance metrics even significant medical errors must now be disclosed to the community there are several potential advantages of information provision policies and theory suggests that disclosure programs may effectively achieve their goals healy and palepu 2001 provided a survey of the evidence in capital markets brouhle and khanna 2007 demonstrated that information provision can improve product quality in the environmental area kennedy laplante and maxwell 1994 arora and gangopadhyay 1995 maxwell lyon and hackett 2000 kirchhoff 2000 and khanna 2001 showed that the provision of information about pollution may correct a market failure improve performance and enhance welfare despite the literature s theoretical findings the empirical effects of disclosure programs remain inconclusive early studies of securities regulation found mixed results see stigler 1964 robbins and werner 1964 and benston 1973 a more recent literature suggested that disclosure programs in financial markets can achieve their desired effects la porta and lopez de silanes 2006 and greenstone oyer and vissing jorensen 2006 found that both market size and market returns were positively influenced by mandatory disclosure programs in product quality settings chipty and witte 1998 established that resource and referral agencies significantly influenced childcare prices but had no impact on the quality of care in contrast jin and leslie 2003 found that mandatory hygiene grade cards positively affected restaurant quality and health outcomes studies of environmental performance yielded similarly mixed results desvousges smith and rink 1992 found that information based programs influenced attitudes favorable to radon testing but testing itself only increased when mass media dissemination was coupled with community based implementation programs konar and cohen 1997 and khanna quimio and bojilova 1998 found that stock movements associated with toxics release inventory tri announcements led to increased abatement and reduced emissions however bui 2005 found that the declines in emissions after tri reporting events may have been attributable to regulation rather than investor pressure bennear and olmstead 2006 found that drinking water quality notices lowered violations for some systems but not others this paper is the first empirical economic study of the impacts of mandatory information provision in the electric utility industry the disclosure programs considered here differ significantly from the tri information programs examined previously

how pervasive is earnings management evidence from a structural model although researchers often view earnings management as being widespread measuring the cost and level of earnings management is a nontrivial task we derive a measure of earnings management cost an

evaluating the public perceptions of nuclear power in china evidence from a contingent valuation survey national natural science foundation of china 71303199 71373218 ministry of education foundation of china 13yjc790123 11jbgp006 13jzd010 fundamental research funds for the central universities 201122g008 2014221001 national social science foundation of china 13zd167

labor unemployment insurance and earnings management abstract we provide new evidence that firms appear to manage long run earnings upward in order to manage rank and file employees perceptions of employment security in particular we exploit exogenous state level changes in unemployment insurance benefits and test for partial unwinding of prior upward earnings management when benefits increase consistent with the hypothesis we find a significant reduction in abnormal accruals increased recognition of special items and write downs and greater likelihood of net income reducing restatements following an increase in state level unemployment benefits a number of cross sectional results are also consistent with the hypothesis

earnings manipulation and the cost of capital the cost of capital the widespread use of accounting information by investors and financial analysts to help value stocks creates an incentive for managers to manipulate earnings in an attempt to influence short term stock price performance this paper examines the role of earnings management in affecting a firm s cost of capital using an agency model with multiple firms whose cash flows are correlated we demonstrate that the extent of earnings manipulation varies across the business cycle depending on a firm s earnings profile it can have stronger incentives to overstate its performance in good times or in bad times because of this dependence on the state of the economy earnings manipulation can influence a firm s cost of capital despite the forces of diversification

does meeting earnings expectations matter evidence from analyst forecast revisions and share prices this paper investigates whether the market rewards firms meeting current period earnings expectations and whether any such reward reflects the implications of meeting expectations in the current period for future earnings or reflects a distinct market premium we document that abnormal annual returns are significantly greater for firms meeting expectations controlling for the information in the current year s earnings we then test whether firms meeting expectations experience higher returns simply because their expected future earnings are also higher we find firms meeting expectations have significantly higher earnings forecasts and realized earnings than firms that do not we find that controlling for these higher future earnings firms meeting expectations in one or two years do not receive a greater valuation than their fundamentals would suggest we find however that the market assigns a higher value to firms that meet expectations consistently controlling for an estimate of the firm s fundamental value

do insurers manipulate loss reserves to mask solvency problems abstract we report that insurance firms manage loss reserves to avoid violating certain test ratio bounds known as iris ratios that are used by regulators for solvency assessment in our sample almost two thirds of the firms that would violate four or more iris ratios successfully adjust reserves to reduce the reported number of violations to less than four this finding is significant because four violations usually trigger regulatory intervention our results indicate that non earnings goals are an important influence on discretionary accounting choice they also suggest that reserve manipulation can postpone needed regulatory intervention sometimes for an extended period

the effect of audit adjustments on earnings quality evidence from china we examine how adjustments to earnings during year end audits affect measures of earnings quality there are four key findings first audit adjustments cause earnings to become smoother and more persistent second the adjustments result in higher accrual quality third audit adjustments have a larger negative effect on signed accruals than absolute accruals fourth the adjustments do not reduce the discontinuity in the earnings distribution around zero these findings are of interest to researchers who use earnings properties as proxies for earnings quality and audit quality however we caution that our findings for china may not generalize to other countries

the effect of payment schemes on inventory decisions the role of mental accounting does the payment scheme have an effect on inventory decisions in the newsvendor problem keeping the net profit structure constant we examine three payment schemes that can be interpreted as the newsvendor s order being financed by the newsvendor herself scheme o by the supplier through delayed order payment scheme s and by the customer through advanced revenue scheme c in a laboratory study we find that inventory quantities exhibit a consistent decreasing pattern in the order of schemes o s and c with the order quantities of scheme s being close to the expected profit maximizing solution these observations are inconsistent with the expected profit maximizing model contradict what a regular or hyperbolic time discounting model would predict and cannot be explained by the loss aversion model instead they are consistent with a model that underweights the order time payments which can be explained by the prospective accounting theory in the mental accounting literature a second study shows that the results hold even if all physical payments are conducted at the same time suggesting that the framing of the payment scheme is sufficient to induce the prospective accounting behavior we further validate the robustness of our model under different profit conditions our findings contribute to the understanding of the psychological processes involved in newsvendor decisions and have implications for supply chain financing and contract design this paper was accepted by christian terwiesch operations management

does religion mitigate earnings management evidence from china using a sample of 11 357 firm year observations from the chinese stock market for the period of 2001 2011 we investigate whether and how religion can mitigate earnings management specifically based on geographic proximity based religion variables we provide strong and robust evidence to show that religion is significantly negatively associated with the extent of earnings management suggesting that religion can serve as a set of social norms to mitigate corporate unethical behavior such as earnings management our findings also reveal that the negative association between religion and earnings management is less pronounced for firms with closer distance to the regulatory centers than for their counterparts implying the substitutive effects between religion and the distance to regulators the proxy for regulatory intensity on mitigating earnings management the above results are robust to different measures of earnings management various religion variables and a variety of sensitivity tests

financing constraints and the cost of capital evidence from the funding of corporate pension plans we investigate the relation between firms weighted average cost of capital and internal financial resources using mandatory pension contributions as a proxy for internal financial resources rauh 2006 documents a negative association between mandatory pension contributions and capital expenditures we find that an increase in mandatory pension contributions increases the cost of capital but only for firms facing greater external financing constraints our results suggest that firms cost of capital is an intervening variable that can explain rauh s finding that mandatory pension contributions i e internal financing constraints result in foregone investment overall we provide evidence consistent with recent studies rauh 2006 almeida and campello 2007 that conclude that financial market frictions affect real economic activity and in particular corporate investment the author 2011 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

residential energy consumption in urban china a decomposition analysis abstract residential energy consumption rec is the second largest energy use category 10 in china and urban residents account for 63 of the rec understanding the underlying drivers of variations of urban rec thus helps to identify challenges and opportunities and provide advices for future policy measures this paper applies the lmdi method to a decomposition of china s urban rec during the period of 1998 2007 at disaggregated product activity level using data collected from a wide range of sources our results have shown an extensive structure change towards a more energy intensive household consumption structure as well as an intensive structure change towards high quality and cleaner energy such as electricity oil and natural gas which reflects a changing lifestyle and consumption mode in pursuit of a higher level of comfort convenience and environmental protection we have also found that china s price reforms in the energy sector have contributed to a reduction of rec while scale factors including increased urban population and income levels have played a key role in the rapid growth of rec we suggest that further deregulation in energy prices and regulatory as well as voluntary energy efficiency and conservation policies in the residential sector should be promoted

earnings quality evidence from the field abstract we provide insights into earnings quality from a survey of 169 cfos of public companies and in depth interviews of 12 cfos and two standard setters cfos believe that i above all high quality earnings are sustainable and repeatable specific characteristics include consistent reporting choices backing by actual cash flows and absence of one time items and long term estimates ii about 50 of earnings quality is driven by non discretionary factors such as industry and macro economic conditions iii in any given period about 20 of firms manage earnings to misrepresent economic performance and for such firms 10 of eps is typically managed iv earnings manipulation is hard to unravel from the outside but peer comparisons and lack of correspondence between earnings and cash flows provide helpful red flags in addition cfos disagree with current standard setting on a number of issues including the sheer number of promulgated rules the top down approach to rule making the neglect of the matching principle and the emphasis on fair value accounting they indicate that a rules based culture makes the audit function centralized and mechanical and hinders the development of audit professionals a summary impression from our work is that cfos view earnings quality as more of a single and unconditional characteristic in contrast to current research where measures of earnings quality are strongly conditional on the decision setting this cfo view is related to their idea of one number a single earnings metric that shapes both their interactions with external stakeholders and internal decision making

do baths muddy the waters or clear the air we examine the information environments of firms following large non recurring charges baths we test competing hypotheses about the consequences of a bath a bath either improves the information environment the transparency hypothesis or degrades it the opacity hypothesis difference in differences analysis suggests that after a bath 1 earnings become smoother 2 firm level information asymmetry decreases and 3 stock returns become more responsive to unexpected earnings we interpret these findings as supportive of the transparency hypothesis we also document that the relative improvement in the information environment is greater for baths that are not voluntary consistent with managerial obfuscation prior to the bath

do scaling and selection explain earnings discontinuities abstract earnings distributions commonly exhibit statistically significant discontinuities at zero earnings which are widely interpreted as evidence of earnings management to avoid a loss in contrast durtschi and easton 2005 durtschi and easton 2009 assert that discontinuities are instead explained by some combination of prior researchers choice s of scaling and sample selection as well as a scaling related effect due to a systematic relation between the sign of earnings and market prices resolution of the conflicting interpretations of discontinuities is important because 1 it affects how investors regulators and scholars view earnings management and 2 it demonstrates the importance of a close linkage between theory and research design choices we point out that de provide no evidence that scaling or selection create discontinuities but only evidence showing that changes in scaling or selection eliminate discontinuities we demonstrate why the research designs used by de eliminate discontinuities and why alternative designs using the same data yield statistically significant discontinuities that cannot be attributed to either scaling or selection

the impact of energy labels and accessibility on office rents abstract energy consumption in the commercial property sector offers an important opportunity for conserving resources in this study we evaluate the financial implications of two elements of sustainability energy efficiency and accessibility in the market for commercial real estate an empirical analysis of some 1100 leasing transactions in the netherlands over the 2005 2010 period shows that buildings designated as inefficient with an eu energy performance certificate d or worse command rental levels that are some 6 5 percent lower as compared to energy efficient but otherwise similar buildings labeled a b or c furthermore this study shows that office buildings in multi functional areas with access to public transport and facilities achieve rental premiums over mono functional office districts for policymakers the results documented in this paper provide an indication on the effectiveness of the eu energy performance certificate as a market signal in the commercial property sector the findings documented here are also relevant for investors in european office markets as the importance of energy efficiency and locational diversification is bound to increase following stricter environmental regulation and changing tenant preferences

a review of optimal energy policy instruments on industrial energy efficiency programs rebound effects and government policies abstract industrial energy efficiency programs ieeps are defined as one of the most popular government policies that aim to reduce energy consumption in industrial energy intensive sectors in this paper we review and classify the most important academic studies that have addressed the environmental and economic aspects of ieeps using a systematic review the classification of energy policy instruments has been developed based on an analytical approach we discuss also the outputs benefits and barriers of ieeps besides a comprehensive argument about the restrictive policies on the rebound effects made after the implementation of these programs the results disclose that china usa and sweden are the most addressed countries on ieeps and their applications in this regard incentive energy policies e g voluntary agreements and subsidies have been applied more than others in the last decade furthermore most of the reviewed studies emphasize energy price reform as an effective practical policy while a few analytical methods can be seen to help policy makers determine the optimal levels of decision variables finally according to the state of the art analysis the authors provide some novel recommendations to improve the performance of ieeps using some restrictive policies on the negative impacts of rebound effects

how control system design influences performance misreporting this paper investigates reporting honesty when managers have monetary incentives to overstate their performance we argue that managers who report about their performance will take into account how their report affects their peers i e other managers at the same hierarchical level this effect depends on the design of the organization s control system in particular on the reward structure and the information policy regarding individual performance reports the reward structure determines if peers monetary payoff is increased or decreased when managers claim a higher level of performance the information policy determines if managers will be able to link individual peers to their reports and affects the nonmonetary costs of breaking social norms we present the results of a laboratory experiment as predicted we find that participants are more likely to overstate their performance if this increases the monetary payoff of others than if their reported performance decreases others monetary gains in addition overstatements are lower under an open information policy where each individual s reported performance is made public compared to a closed information policy where participants only learn the average performance of the other participants our findings have several important implications for management accounting research and practice

earnings management the shapes of the frequency distributions of earnings metrics are not evidence ipso facto we provide evidence that the shapes particularly around zero of the frequency distributions of earnings metrics examined in the extant earnings management literature are affected by 1 deflation using for example price or market capitalization 2 sample selection criteria that lead to differential inclusion exclusion of observations to the left of zero versus observations to the right of zero implicit in studies focusing on firms followed by i b e s and explicit in studies partitioning on a variable differing between loss observations and profit observations 3 differences between the characteristics of observations to the left of zero and observations to the right of zero such as market pricing and analyst optimism pessimism or 4 a combination of these factors since the shapes of the frequency distributions of earnings metrics at zero are likely due to one of the above effects we conclude that the shapes cannot be used as ipso facto evidence of earnings management