when transparency improves must prices reflect fundamentals better no in the presence of speculative opportunities investors can learn about both asset fundamentals and the beliefs of other traders we show that this learning exhibits complementarity learning more along one dimension increases the value of learning about the other as a result regulatory changes may be counterproductive first increasing transparency i e making fundamental information cheaper to acquire can make prices less informative when investors respond by learning relatively more about others second public disclosures discourage private learning about fundamentals while encouraging information acquisition about others accordingly disclosing more fundamental information can decrease overall informational efficiency by decreasing price informativeness received april 20 2016 editorial decision september 30 2017 by editor itay goldstein

qualitative and quantitative evidence on the true local welfare costs of forest conservation in madagascar are discrete choice experiments a valid ex ante tool summary protected areas may impose local welfare costs through the enforcement of use restrictions predicting their welfare impacts before their establishment could help with the design of compensation schemes discrete choice experiments dces are increasingly used for ex ante evaluations but their validity is largely untested in low income settings using a case study of a new redd reducing emissions from deforestation and forest degradation project in eastern madagascar we explore the validity of dces in two ways i whether the estimates of welfare costs derived from dce are affected by respondents prior experience of conservation ii whether dce results have high theoretical and content validity we surveyed households who have varying degrees of experience of restrictions to swidden agriculture we also qualitatively debriefed a sub sample of respondents to better understand their thought processes latent class analysis shows that dce outcomes vary with conservation experience households more experienced with forest protection are less willing to trade off rights to clear forest for swidden agriculture with any compensatory interventions whereas less experienced households highly favor support for alternative agricultural techniques and a secure right to clear one hectare of forest although the results show apparent non attendance to some attributes e g cash payments qualitative debriefings suggest that respondents infact do expect relatively low or no utility from the given attributes and hence have theoretically valid preferences similarly the dce has generally high content validity although dce can elicit current preferences in this context using ex ante dce to estimate the welfare costs of such a long term intervention requires caution we conclude that it is difficult to robustly estimate compensation in advance of an intervention there is therefore a need to rethink conservation approaches and the feasibility of achieving fair compensations for conservation imposed restrictions

the generalized multinomial logit model accounting for scale and coefficient heterogeneity the mixed or heterogeneous multinomial logit mixl model has become popular in a number of fields especially marketing health economics and industrial organization in most applications of the model the vector of consumer utility weights on product attributes is assumed to have a multivariate normal mvn distribution in the population thus some consumers care more about some attributes than others and the iia property of multinomial logit mnl is avoided i e segments of consumers will tend to switch among the subset of brands that possess their most valued attributes the mixl model is also appealing because it is relatively easy to estimate recently however some researchers have argued that the mvn is a poor choice for modelling taste heterogeneity they argue that much of the heterogeneity in attribute weights is accounted for by a pure scale effect i e across consumers all attribute weights are scaled up or down in tandem this implies that choice behaviour is simply more random for some consumers than others i e holding attribute coefficients fixed the scale of their error term is greater this leads to a scale heterogeneity mnl model s mnl here we develop a generalized multinomial logit model g mnl that nests s mnl and mixl by estimating the s mnl mixl and g mnl models on 10 data sets we provide evidence on their relative performance we find that models that account for scale heterogeneity i e g mnl or s mnl are preferred to mixl by the bayes and consistent akaike information criteria in all 10 data sets accounting for scale heterogeneity enables one to account for extreme consumers who exhibit nearly lexicographic preferences as well as consumers who exhibit very random behaviour in a sense we formalize below

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

the economic consequences of discrete recognition and continuous measurement abstract discrete recognition is a long standing and ubiquitous accounting practice but it has been widely criticized for suppressing information and inducing accounting motivated transactions we study a model to examine the economic consequences of shifting away from discrete recognition to a continuous measurement approach without manipulation discrete recognition is less informative than the continuous approach however the continuous regime induces more manipulation the equilibrium informativeness is determined by both the accounting standard and endogenous manipulation discrete recognition is more informative than its continuous counterpart precisely when manipulation is a severe threat we respond to the recent call in kothari ramanna and skinner 2010 for using positive accounting theory to explain certain long standing accounting practices we also discuss the model s implications for fair value accounting

contracting theory and accounting abstract this paper reviews agency theory and its application to accounting issues i discuss the formulation of models of incentive problems caused by moral hazard and adverse selection problems i review theoretical research on the role of performance measures in compensation contracts and i compare how information is aggregated for compensation purposes versus valuation purposes i also review the literature on communication including models where the revelation principle does not apply so that nontruthful reporting and earnings management can take place the paper also discusses capital allocation within firms including transfer pricing and cost allocation problems

accounting conservatism and firm investment efficiency abstract we argue that conservatism improves investment efficiency in particular we predict that it resolves debt equity conflicts facilitating a firm s access to debt financing and limiting underinvestment this permits the financing of prudent investments that otherwise might not be pursued our empirical results confirm these predictions we find that more conservative firms invest more and issue more debt in settings prone to underinvestment and that these effects are more pronounced in firms characterized by greater information asymmetries we also find that conservatism is associated with reduced overinvestment even for opaque investments such as research and development

public disclosure private information collection and short term trading abstract this paper examines how public disclosure affects private inforamtion acquisition activity in a market economy we analyze a setting where traders with short term investment horizons are allowed to trade on their private information prior to a public disclosure we demonstrate in this setting that public disclosure stimulates investment in private information acquisition this result is shown to have implications for the magnitude of the pre announcement and announcement price reactions to the disclosure

on the recoverability of choice behaviors with random coefficients choice models in the context of limited data and unobserved effects random coefficients choice models are seeing widespread adoption in marketing research partly because of their ability to generate household level parameter estimates with limited data however the power of such models may tempt researchers to trust that they continue to produce reasonable estimates when in fact either model misspecification or insufficient data limits the models ability to recover household level parameters successfully if household level choice behaviors are not recovered successfully managerial decisions such as marketing mix planning and targeting direct marketing segmentation and forecasting may not produce the desired results this study addresses the following questions first can random coefficients choice models correctly identify markets characterized by preference and response heterogeneity state dependence the use of alternative decision heuristics that result in reduced choice sets and combinations of these effects if so how much data is required and is this realistic given the size of data sets typically used in marketing analyses which model selection criteria should be used to identify these markets when there is spurious market identification which parameters contribute to the spurious result an extensive simulation experiment is conducted wherein random coefficients logit models with varying specifications of parameter heterogeneity state dependence effects and choice set heterogeneity are applied to 128 experimental conditions the results show which types of markets can be identified reliably and which cannot based on the results of the simulation the authors develop a model selection heuristic that identifies the correct market in 81 of the experimental conditions in contrast strict application of the best model selection criterion alone results in correct market identification in at most 34 of experimental conditions interestingly we find that the amount of data number of households or number of purchases per household does not affect our ability to identify the correct market type with this heuristic so there is a good chance of identifying the correct market type even when little data is available

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

the contracting benefits of accounting conservatism to lenders and borrowers abstract this paper examines the ex post and ex ante benefits of accounting conservatism to lenders and borrowers in the debt contracting process i expect conservatism to benefit lenders ex post through the timely signaling of default risk as manifested by accelerated covenant violations and to benefit borrowers ex ante through lower initial interest rates consistent with these predictions i find that more conservative borrowers are more likely to violate debt covenants following a negative price shock and that lenders offer lower interest rates to more conservative borrowers

commentary on the interpretation of temporal inflation parameters in stochastic models of judgment and choice the implications of salisbury and feinberg s 2010 paper salisbury l c f m feinberg 2010 alleviating the constant stochastic variance assumption in decision research theory measurement and experimental test marketing sci 29 1 1 17 for the process of model development and testing in the field of intertemporal choice analysis is explored although supporting the overall thrust of salisbury and feinberg s critique of previous empirical work in the area we also see their paper as illustrating the dangers of drawing strong inferences about the behavioral interpretation of statistical model parameters without seeking convergent empirical evidence in particular we are skeptical about the extent to which the reported effects of temporal distance on the estimated scale parameter c are uniquely or even primarily due to unobserved error inflation that reflects consumer s uncertainty about future utility this interpretation is brought into question by several lines of reasoning conceptually we note that uncertainty is different from error and that for choice data the error inflation model is mathematically identical to a model in which the scale parameter is a deterministic function of the temporal discount rate empirically a reanalysis of data from previously published experiments does not consistently support temporal error inflation temporal convergence of choice shares or the scale parameter as an explanation of variety seeking in choice sequences in our opinion the cumulative results of research on intertemporal choice require models in which the attributes of choice alternatives are differentially discounted over time despite these findings we advocate that choice researchers should indeed follow salisbury and feinberg s advice to not assume that error variances will be unaffected by experimental manipulations and such effects should be explicitly modeled we also agree that uncovering effects on error variance is just the first step and the ultimate goal should be to rigorously explain the reasons for such effects

agency problems auditing and the theory of the firm some evidence agency problems auditing and the theory of the firm some evidenceauthor s ross l watts and jerold l zimmermansource journal of law and economics vol 26 no 3 oct 1983 pp 613 633published by the university of chicago pressstable url http www jstor org stable 725039accessed 29 06 2008 23 14

switching costs price sensitivity and health plan choice we investigate the extent to which sensitivity to health plan premiums differs across individuals according to characteristics related to the cost of switching plans our results indicate substantial variation in price sensitivity related to expected health care costs younger healthier employees are between two and four times more sensitive to price than employees who are older and who have been recently hospitalized or diagnosed with cancer we also find evidence of status quo bias estimated premium elasticities are significantly higher for new hires than for incumbent employees simulations combining our results with actuarial data illustrate the cost implications of risk related differences in price elasticity

implications for gaap from an analysis of positive research in accounting based on extant literature we review the positive theory of gaap the theory predicts that gaap s principal focus is on control performance measurement and stewardship and that verifiability and conservatism are critical features of a gaap shaped by market forces we recognize the advantage of using fair values in circumstances where these are based on observable prices in liquid secondary markets but caution against expanding fair values to financial reporting more generally we conclude that rather than converging u s gaap with ifrs competition between the fasb and the iasb would allow gaap to better respond to market forces

a measurement approach to conservatism and earnings management this paper formalizes a two step representation of accounting measurement and uses it to formalize a general rationale for conservatism as a measurement principle a transaction s economic substance manifests itself in characteristics of the transaction and an accounting rule is a mapping from transaction characteristics to an accounting report managers who have stakes in the accounting report are able to influence transaction characteristics such earnings management is ex post rational for managers but ex ante inefficient to safeguard against such ex post opportunism the optimal ex ante accounting rule is conservative in the sense that it requires more verification of the transaction characteristics favorable to managers thus this rationale for conservatism is as general as the managers ability and incentive to inflate transaction characteristics by opening the black box of accounting measurement the two step representation also formalizes some classic accounting concepts such as relevance reliability verifiability verification and accounting motivated transactions

modeling parametric evolution in a random utility framework random utility models have become standard econometric tools allowing parameter inference for individual level categorical choice data such models typically presume that changes in observed choices over time can be attributed to changes in either covariates or unobservables we study how choice dynamics can be captured more faithfully by also directly modeling temporal changes in parameters using a vector autoregressive process and bayesian estimation this approach offers a number of advantages for theorists and practitioners including improved forecasts prediction of long run parameter levels and correction for potential aggregation biases we illustrate the method using choices for a common supermarket good where we find strong support for parameter dynamics

public information and uninformed trading implications for market liquidity and price efficiency abstract we develop a rational expectations equilibrium model in which noise trading comes from discretionary liquidity traders the equilibrium quantity of aggregate noise trading is endogenously determined by the population size of liquidity traders active in the financial market by improving market liquidity public information reduces the expected trading loss of liquidity traders and thus attracts more such traders to the market which negatively affects information aggregation analyzing an alternative setting that models noise trading as coming from hedgers yields similar insights in a setting with endogenous information public information can harm information aggregation both through crowding out private information and through attracting noise trading

consumer rationality and the status quo received microeconomic theory presumes rational consumers maximize utility over all commodity bundles recent analysis however suggests that a consumer s status quo may limit economic rationality bias consumer decisions and induce serious errors in survey based valuations of public and private goods using regression and choice theoretic frameworks we investigate the existence of status quo effects in the consumer valuation of a particular unpriced product the reliability of residential electrical service such valuations have become important in electric utility resource planning and rate making we find substantial status quo effects which must be addressed in welfare comparisons regarding electric service reliability

economic consequences of accounting standards the lease disclosure rule change this accounting standard essentially rearranged capital lease disclosures from footnotes to the balance sheet mandated capitalization substantially altered key accounting ratios our results document a systematic substitution from capital leases to operating leases and nonlease sources of financing in addition lessees appear to reduce book leverage by increasing equity and reducing conventional debt the magnitudes of these responses are cross sectionally related to preadoption levels of footnoted capital leases

rejoinder temporal stochastic inflation in choice based research we examine the specification and interpretation of discrete choice models used in behavioral theory testing with a focus on separating coefficient scale from error scale particularly over time numerous issues raised in the thoughtful commentaries of louviere and swait louviere j j swait 2010 discussion of alleviating the constant stochastic variance assumption in decision research theory measurement and experimental test marketing sci 29 1 18 22 and hutchinson zauberman and meyer hzm hutchinson j w g zauberman r meyer 2010 on the interpretation of temporal inflation parameters in stochastic models of judgment and choice marketing sci 29 1 23 31 are addressed specifically the roles of response scaling preference covariates actual versus hypothetical consumption immediacy and heterogeneity as well as key differences between the experimental setup in salisbury and feinberg salisbury l c f m feinberg 2010 alleviating the constant stochastic variance assumption in decision research theory measurement and experimental test marketing sci 29 1 1 17 and those typifying intertemporal choice and construal level theory we strongly concur with most of the general conclusions put forth by the commentary authors but we also emphasize a central point made in our research that may have been lost that the temporal inflation effects observed in our empirical analysis could be attributed to stochastic effects deterministic influences or an amalgam appropriate inferences depend on the nature of one s data and stimuli we also report on further analyses of our data as well as a meta analysis of hzm s table 1 that is consistent with our original findings implications for and dimensions relevant to future research on temporal stochastic inflation and its role in choice based research are discussed

optimal managerial contracts and equilibrium security prices recent developments in economic theory have focused attention on efficient methods for providing incentives within a corporation especially to top management jensen meckling 12 have examined some implications of incentive or agency problems for corporate finance in this paper we combine a simple model of security market equilibrium with that of an optimal managerial incentive contract using results of harris raviv 8 and holmstrom 9 we provide a rationale for including security prices in the managerial incentive contracts of publicly held firms in this model we also show that non systematic diversifiable risks will be considered in the capital budgeting decisions of a managerial firm operated in the interests of its stockholders this is in contrast to the implication of the arbitrage pricing theory a similar result follows from the capital asset pricing model which abstracts from incentive problems and suggests that only systematic risks ought to be considered the optimal contract model of the corporation takes the following view of the firm since decision makers within a firm are not sole owners of the business but employed agents the decisions which they make depend on the incentives which the organization provides these incentives are embodied explicitly in employment contracts and implicitly through the threat of dismissal or effect on reputation the contract whether explicit or not describes the decision maker s anticipation of the consequences to him conditional on various observable outcomes these outcomes are used to provide information useful in determining whether he did his job properly in the simplest optimal contract scenario there is a single principal and a single agent whose decision concerns the level of effort he expends the level of effort affects the level of output of the firm but not unambiguously because the output is also governed by other stochastic elements as a result some information about the agent s level of effort can be inferred

accounting conservatism and the efficiency of debt contracts in this paper we examine how accounting conservatism affects the efficiency of debt contracting we develop the statistical and informational properties of accounting reports under varying degrees of conditional and unconditional accounting conservatism consistent with basu s 1997 description of differ ential verifiability standards optimal debt covenants and interest rates on debt are derived from a natural tension between debt holders and equity claimants we show how optimal covenants vary with the degree of conservatism and de rive an efficiency metric that depends on the degree of conservatism we find that accounting conservatism actually decreases the efficiency of debt contracts contrary to the suggestions of watts 2003 and contrary to the hypothesis in numerous empirical studies

optimal monitoring policies in agencies this article considers a principal agent problem in which the principal has access to a costly monitoring technology that can be used to acquire additional information about the agent s actions subsequent to observing the agent s output although randomized monitoring policies are feasible we show that in a variety of contexts optimal monitoring policies are deterministic and lower tailed that is there exists some critical level of output such that further investigation of the agent s actions occurs if and only if output falls below this critical level

accounting information in financial contracting the incomplete contract theory perspective this paper reviews theoretical and empirical work on financial contracting that is relevant to accounting researchers its primary objective is to discuss how the use of accounting information in contracts enhances contracting efficiency and to suggest avenues for future research we argue that incomplete contract theory broadens our understanding of both the role accounting information plays in contracting and the mechanisms through which efficiency gains are achieved by discussing its rich theoretical implications we expect incomplete contract theory to prove useful in motivating future research and in offering directions to advance our knowledge of how accounting information affects contract efficiency

oil field unitization contractual failure in the presence of imperfect information an empirical analysis of the impact of transaction costs on contracting shows that imperfect in formation can seriously limit the effectiveness of private contracting the case under study is the widespread failure of private crude oil producing firms to use us oil fields to reduce rent dissipation rent dissipation follows as multiple firms compete for migratory oil in common oil pools unitization is the obvious private contractual solution to rent dissipation the authors argue that despite large net gains from unitization imperfect information and information asymmetries among the negotiating parties regarding lease values prevents consensus on unit shares as a result contracts are often not completed or only fragmented units are completed 9 references 1 figure 4 tables

disclosure and choice an agent chooses among projects with random outcomes his payoff is increasing in the outcome and in an observer s expectation of the outcome with some probability the agent will be able to disclose some information about the true outcome to the observer we show that choice is inefficient in general we illustrate this point with a characterization of the inefficiencies that result when the agent can perfectly disclose the outcome with some probability and can disclose nothing otherwise as in dye 1985a in this case the agent favours riskier projects even with lower expected returns on the other hand if information can also be disclosed by a challenger who prefers lower beliefs of the observer the chosen project is excessively risky when the agent has better access to information excessively risk averse when the challenger has better access and efficient otherwise we also characterize the agent s worst case equilibrium payoff we give examples of alternative disclosure technologies illustrating other forms the inefficiencies can take for example in a two dimensional setting we demonstrate a hitting for the fences effect where the agent systematically focuses on the harder dimension at the expense of success on the easier

informational feedback adverse selection and optimal disclosure policy faceless trading in a secondary stock market not only redistributes wealth among investors but also generates information that feeds back to real decisions using this observation we re evaluate the leveling the playing field rationale for disclosure to secondary stock markets by partially preempting traders information advantage established from information acquisition disclosure reduces private incentives to acquire information resulting in two opposite effects on firm value on one hand this narrows the information gap between informed and uninformed traders and improves liquidity of firm shares on the other hand this reduces the informational feedback from the stock market to real decisions this tradeoff determines the optimal disclosure policy the model explains why firm value can be higher in an environment that simultaneously promotes disclosure and private information production and why growth firms are endogenously more opaque than value firms

optimal impairment rules abstract we study the optimal accounting policy of a financially constrained firm that pledges assets to raise debt capital for financing a risky project the accounting system provides information about the value of the collateral absent accounting regulation the optimal accounting system is conditionally conservative it recognizes an impairment loss if the asset value is below a certain threshold but never reports unrealized gains we describe the optimal impairment rule and the optimal precision of the accounting information and we provide comparative static results that lead to testable predictions on the determinants of impairment rules

alleviating the constant stochastic variance assumption in decision research theory measurement and experimental test analysts often rely on methods that presume constant stochastic variance even though its degree can differ markedly across experimental and field settings this reliance can lead to misestimation of effect sizes or unjustified theoretical or behavioral inferences classic utility based discrete choice theory makes sharp testable predictions about how observed choice patterns should change when stochastic variance differs across items brands or conditions we derive and examine the implications of assuming constant stochastic variance for choices made under different conditions or at different times in particular whether substantive effects can arise purely as artifacts these implications are tested via an experiment designed to isolate the effects of stochastic variation in choice behavior results strongly suggest that the stochastic component should be carefully modeled to differ across both available brands and temporal conditions and that its variance may be relatively greater for choices made for the future the experimental design controls for several alternative mechanisms e g flexibility seeking and a series of related models suggest that several econometrically detectable explanations like correlated error state dependence and variety seeking add no explanatory power a series of simulations argues for appropriate flexibility in discrete choice specification when attempting to detect temporal stochastic inflation effects

earnings and price based compensation contracts in the presence of discretionary trading and incomplete contracting abstract the paper analyzes the use of reported accounting earnings and price as a basis for compensating a manager when he trades on private information and share price is set rationally based on privately held information publicly available and contractible information and publicly available but noncontractible information in addition we analyze the comparative statics of the compensation on reported earnings and price with respect to changes in the economy

trading frenzies and their impact on real investment we study a model in which a capital provider learns from the price of a firm s security in deciding how much capital to provide for new investment this feedback effect from the financial market to the investment decision gives rise to trading frenzies in which speculators all wish to trade like others generating large pressure on prices coordination among speculators is sometimes desirable for price informativeness and investment efficiency but speculators incentives push in the opposite direction so that they coordinate exactly when it is undesirable we analyze the effect of various market parameters on the likelihood of trading frenzies to arise

imperfect accounting and reporting bias errors and bias are both inherent features of accounting in theory while errors discourage bias by lowering the value relevance of accounting they can also facilitate bias by providing camouflage consistent with theory we find a hump shaped relation between a firm s propensity to engage in intentional misstatement and the prevalence of unintentional misstatements in the firm s industry for the whole economy and a majority of the industries the result is robust to using firms number of items in financial statements and exposure to complex accounting rules as alternative proxies for errors and to using the restatement amount in net income to quantify the magnitude of bias and errors to directly test for the two effects of errors we show that when errors are more prevalent the market reacts less to firms earnings surprises and bias is more difficult to detect our results highlight the imperfectness of accounting advance understanding of firms reporting incentives and shed light on accounting standard setting

can big bath and earnings smoothing co exist as equilibrium financial reporting strategies we study a model of financial reporting where investors infer the precision of reported earnings reporting a larger earnings surprise reduces the inferred earnings precision dampening the impact on firm value of reporting higher earnings and providing a natural demand for smoother earnings we show that for sufficiently bad news the manager under reports earnings by the maximum preferring to take a big bath in the current period in order to report higher future earnings if the news is good the manager smoothes earnings with the amount of smoothing depending on the level of cashflows observed he either over reports or partially under reports for slightly good news and gradually increases his under reporting as the news gets better until he is under reporting the maximum amount for sufficiently good news this result holds both when investors are naive and ignore management s ability to manipulate earnings or sophisticated and correctly infer management s disclosure strategy

modeling heterogeneity and state dependence in consumer choice behavior in frequently purchased consumer goods markets consumer brand choices exhibit substantial persistence across purchase occasions in this article i estimate a choice model that admits of both heterogeneity in preferences and true state dependence as sources of this persistence using nielsen scanner data on ketchup i find evidence for true state dependence in the choice process even after controlling for a rich heterogeneity structure simulation of the model indicates that the long term effect of a promotion induced purchase on future purchase probabilities is positive but small

ceo stock option awards and the timing of corporate voluntary disclosures abstract we investigate whether ceos manage the timing of their voluntary disclosures around stock option awards we conjecture that ceos manage investors expectations around award dates by delaying good news and rushing forward bad news for a sample of 2 039 ceo option awards by 572 firms with fixed award schedules we document changes in share prices and analyst earnings forecasts around option awards that are consistent with our conjecture we also provide more direct evidence based on management earnings forecasts issued prior to award dates our findings suggest that ceos make opportunistic voluntary disclosure decisions that maximize their stock option compensation

the going public decision and the development of financial markets this paper explores the linkages between stock price efficiency the choice between private and public financing and the development of capital markets in emerging economies generally the advantage of public financing is high if costly information is diverse and cheap to acquire and if investors receive valuable information without cost the value of public firms generally depends on public market size which implies that there can be a positive externality associated with going public so that an inferior equilibrium can exist where too few firms go public the model is consistent with empirical observations on financial market development

experiences with individual transferable quotas an overview i introduction rights based management in fisheries is based on the allocation and enforcement of property rights in the form of access and use rights individual transferable quotas itqs allocate the total allowable catch among fishers in the form of individual harvesting rights in contrast to traditional regulations itqs operate on the principle that incentives rather than controls should be used to manage a fishery theoretically if itqs command a positive price fishers will take into account a share of the externality imposed on others provided that they are perceived as an exclusive and durable property right it can be shown analytically that itqs will not maximize the net return in a fishery given the existence of stock or congestion externalities but they should lead to a superior outcome compared to open access boyce 1992 this paper addresses the question of whether itqs have achieved the benefits often attributed to them il experiences with itqs itq programmes have been implemented in a number of fisheries in several countries including canada iceland australia and new zealand these programmes are evaluated to determine whether itqs have led to changes in employment and harvesting shares a reduction in fishing effort or an increase in profitability 1 reduction in fishing effort one of the expected benefits of itqs is that they can reduce the excess capital employed in a fishery depending upon the fishery and the potential opportunities in alternative activities the removal of excess harvesting capacity may involve an adjustment period of several years grafton 1994 provides a listing of the changes in vessel numbers in selected rights based

institutions and behavior experimental evidence on the effects of democracy a novel experiment is used to show that the effect of a policy on the level of cooperation is greater when it is chosen democratically by the subjects than when it is exogenously imposed in contrast to the previous literature our experimental design allows us to control for selection effects e g those who choose the policy may be affected differently by it our finding implies that democratic institutions may affect behavior directly in addition to having effects through the choice of policies our findings have implications for the generalizability of the results of randomized policy interventions

cross firm real earnings management cross firm real earnings management our analysis is rooted in the notion that stockholders can learn about the fundamental value of any firm from observing the earnings reports of its rivals we argue that such intra industry information transfers which have been broadly documented in the empirical literature may motivate managers to alter stockholders beliefs about the value of their firm not only by manipulating their own earnings report but also by influencing the earnings reports of rival firms managers obviously do not have access to the accounting system of peer firms but they can nevertheless influence the earnings reports of rival firms by distorting real transactions that relate to the product market competition we demonstrate such managerial behavior which we refer to as cross firm real earnings management and explore its potential consequences and interrelation with the practice of accounting based earnings management within an industry setting with imperfect non proprietary accounting information this article is protected by copyright all rights reserved

property rights and choice the case of the fishery formal property rights are typically established after considerable waste has occurred despite the effectiveness of such schemes in addressing the inefficiencies of common pool resources adoption can be contentious because of the assignment of wealth and political influence that accompany the transition to exclusive property rights this paper studies how the early involvement of harvesters in policy implementation designed to address the commons inefficiency may foster perceived legitimacy and lessen political opposition to the establishment of individual property rights we demonstrate that it is optimal for a manager facing industry strife and reform delay to allow firms to self select into the property rights regime the strategic interaction of harvesters leads to an equilibrium characterized by the global adoption of property rights thus by providing harvesters with a choice between management systems policy makers can reduce the transaction costs associated with the need to create political consensus while ensuring an outcome similar to the top down implementation of market based management evidence is provided from a recent policy change in maryland fisheries in which the provision of a choice resulted in the overwhelming adoption of individual transferable quotas and the end of the race to fish

market response to financial reports abstract a two date rational expectations model is analyzed at the first date traders can privately acquire a costly signal that provides imperfect information about a public report that will be issued at the second date equilibrium characterizations are provided for the fraction of traders that become informed and the informativeness of the first date price as well as the price change variance and the expected trading volume at the second date comparative statics identify how the above variables are influenced by changes in the information content of the public report and in particular how market phenomena at the public release date are influenced by endogenous prior information acquisition and trading in response to the forthcoming public release

conservative accounting choices managers have sufficient discretion under generally accepted accounting principles gaap to adopt more or less conservative financial reporting policies in this paper we develop a signaling model to provide insight into managers decisions to be conservative in their accounting we provide conditions under which the market can use the manager s exercise of discretion to infer her private information about the future prospects of the firm and thus firm value under these conditions we also show that there are meaningful differences between earnings response coefficients for firms whose managers choose a conservative reporting policy and those whose managers do not finally we use our theoretical model to provide intuition for some established empirical results on earnings response coefficients

forcing firms to talk financial disclosure regulation and externalities we analyze a model of voluntary disclosure by firms and the desirability of disclosure regulation in our model disclosure is costly it has private and social value and its precision is endogenous we show that i a convexity in the value of disclosure can lead to a discontinuity in the disclosure policy ii the nash equilibrium of a voluntary disclosure game is often socially inefficient iii regulation that requires a minimal precision level sometimes but not always improves welfare iii the same is true for subsidies that change the perceived cost of disclosures and iv neither regulation method dominates the other article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

accounting information disclosure and the cost of capital in this paper we examine whether and how accounting information about a firm manifests in its cost of capital despite the forces of diversification we build a model that is consistent with the capital asset pricing model and explicitly allows for multiple securities whose cash flows are correlated we demonstrate that the quality of accounting information can influence the cost of capital both directly and indirectly the direct effect occurs because higher quality disclosures affect the firm s assessed covariances with other firms cash flows which is nondiversifiable the indirect effect occurs because higher quality disclosures affect a firm s real decisions which likely changes the firm s ratio of the expected future cash flows to the covariance of these cash flows with the sum of all the cash flows in the market we show that this effect can go in either direction but also derive conditions under which an increase in information quality leads to an unambiguous decline in the cost of capital

the relation between earnings and cash flows abstract a model of earnings cash flows and accruals is developed assuming a random walk sales process variable and fixed costs and that the only accruals are accounts receivable and payable and inventory the model implies earnings better predict future operating cash flows than current operating cash flows and the difference varies with the operating cash cycle also the model is used to predict serial and cross correlations of each firm s series the implications and predictions are tested on a 1337 firm sample over 1963 1992 both earnings and cash flow forecast implications and correlation predictions are generally consistent with the data

disclosure decisions by firms and the competition for price efficiency this paper develops a model of the relationship between investment decisions by firms and the efficiency of the market prices of their securities it is shown that more efficient security prices can lead to more efficient investment decisions this provides firms with the incentive to increase price efficiency by voluntarily disclosing information about the firm disclosure decisions are studied it is shown that firms may expend more resources on disclosure than is socially optimal this is in contrast to the concern implicit in mandatory disclosure rules that firms will expend too few resources on disclosure this paper develops a model of the relationship between firms investment decisions and the efficiency of the market prices of their securities it is shown that more efficient security prices can lead to more efficient investment decisions this provides firms with the incentive to increase price efficiency by voluntarily disclosing information about the firm disclosure decisions are studied the costs of disclosure are twofold first there are costs of producing and disseminating the information included here are opportunity costs of firms employees auditing and legal expenses costs of printing and distribution and costs associated with the release of any proprietary information second there are traders costs of assimilating the information for instance while it is not very costly to obtain a firm s 8 k and 10 k once produced it is quite costly to understand the implications of their contents while the former costs have been recognized in the literature on disclosure the latter costs have not that is while traders are sometimes viewed as having access to some costly information the information contained in firms disclosures is typically taken to be costlessly observed by all see for instance diamond 1985 and dye 1987 1 taking traders costs of learning the information content of firms disclosures into account leads to new conclusions regarding incentives to expend resources on disclosure in particular it is shown that firms may spend more on disclosure than is socially optimal this overdisclosure results from firms competing for the attention of traders this is an interesting result given the public policy concern that firms on their own will spend less on disclosure than is socially optimal

good disclosure bad disclosure we study the implications of public information in a model where market prices convey information to relevant decision makers and the uctuation of market prices is driven by multiple factors disclosure has a positive direct eect of providing new information and an indirect eect of changing the price informativeness if disclosure is about a variable of which real decision makers are well informed then the indirect eect is also positive so that the direct eect is ampli ed leading to a positive overall eect on real e ciency if disclosure is about a variable that real decision markers care to learn much then the indirect eect is negative and the direct eect is attenuated moreover in markets which aggregate private information eectively the negative indirect eect can dominate so that disclosure can harm real e ciency

should intangibles be measured what are the economic trade offs we investigate whether a firm s intangible investments should be measured and separated from operating expenses we find that the information extracted from accounting reports of investments and earnings is different when intangibles are measured and identified separately from operating expenses than when intangibles are left commingled with operating expenses this difference in the market s information causes a change in the behavior of market prices inducing changes in the firm s investments and cash flows thus from a real effects perspective measuring intangibles is not unambiguously desirable we identify the conditions under which providing information on intangibles may be desirable this study also shows the inadequacy of statistical associations between accounting numbers and prices as a basis for evaluating the desirability of measuring intangible investments we show that the measurement of intangibles alters the very distribution of cash flows about which the measurement regime is seeking to provide information

factor loading uncertainty and expected returns firm specific information can affect expected returns if it affects investor uncertainty about risk factor loadings we show that a stock s expected return is decreasing in factor loading uncertainty controlling for the average level of its factor loading when loadings are persistent learning by investors can induce time series variation in price dividend ratios expected returns and idiosyncratic volatility even when the aggregate risk premium is constant and fundamental shocks are homoscedastic consistent with our predictions we estimate that average annual returns of a firm with the median level of factor loading uncertainty are 400 to 525 basis points lower than a comparable firm without factor loading uncertainty the author 2012 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

a positive theory of flexibility in accounting standards abstract we develop a positive theory of accounting standards when standards generate network externalities and differ in the amount of reporting discretion or flexibility they provide firms we evaluate expected value maximizing firms preferences between two standards regimes rigid and flexible as the number of firms subject to each standard varies as the organization of the securities market varies and as the mapping from the underlying economics of the firms transactions to the accounting reports produced under the two standards vary we also compare firms preferences between the two regimes to the preferences of profit maximizing traders in the firms securities

market based corrective actions many economic agents take corrective actions based on information inferred from market prices of firms securities examples include directors and activists intervening in the management of firms and bank supervisors taking actions to improve the health of financial institutions we provide an equilibrium analysis of such situations in light of a key problem if agents use market prices when deciding on corrective actions prices adjust to reflect this use and potentially become less revealing we show that market information and agents information are complementary and discuss measures that can increase agents ability to learn from market prices the author 2009 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please email journals permissions oxfordjournals org oxford university press

manipulation and the allocational role of prices it is commonly believed that prices in secondary financial markets play an important allocational role because they contain information that facilitates the efficient allocation of resources this paper identifies a limitation inherent in this role of prices it shows that the presence of a feedback effect from the financial market to the real value of a firm creates an incentive for an uninformed trader to sell the firm s stock when this happens the informativeness of the stock price decreases and the beneficial allocational role of the financial market weakens the trader profits from this trading strategy partly because his trading distorts the firm s investment we therefore refer to this strategy as manipulation we show that trading without information is profitable only with sell orders driving a wedge between the allocational implications of buyer and seller initiated speculation and providing justification for restrictions on short sales

discussion of an economic framework for conservative accounting and bushman and piotroski 2006 abstract we offer an economic framework for generating predictions about the demand for conservative accounting reports we define conservatism as more timely recognition of losses than gains as a result of the costs and benefits of reporting verifiable information by managers and or firms being asymmetric we also discuss bushman and piotroski s interpretation of the speeds of good news recognition and incremental bad news recognition in basu type regressions as separate signals about accounting conservatism finally we suggest avenues for future research that seeks to investigate the links between institutions and contracts and between contracts and conservatism

contracting problems and regulation the case of the fishery the inefficiencies of common property fisheries are of continuing concern to economists the early work by scott gordon 1954 and anthony scott 1955 outlined the problem and later studies by james crutchfield and giulio pontecorvo 1969 and frederick bell 1972 provided empirical estimates of the losses that result those studies were followed by the dynamic models of colin clark 1976 and james quirk and vernon smith 1970 of optimal harvest rates and the use of corrective taxes or quotas to achieve them but in spite of a large and growing literature and the persuasiveness of the outlined efficiency criteria most fisheries retain common property aspects with overcapitalization and excessive labor input why those conditions persist and the failure of the regulatory response to them are the issues addressed in this paper we examine a number of fisheries but focus on the texas shrimp industry which is one of the nation s most valuable fisheries for a single species and which shares the common property characteristics observed elsewhere it is considered overcapitalized and catch per unit of effort is falling 2 examination of the fishery reveals the many margins along which rent dissipation occurs and the nature of the regulations necessary for controlling fishing effort to avoid those losses the regulatory environment in texas is complicated by conflict within the fishery between inshore and offshore fishermen the latter assert that bay shrimping reduces the number of shrimp that successfully migrate to the gulf the inshore fishery is highlighted by another issue the recent resettlement of some 30 45 000 vietnamese refugees including many fishermen along the texas coast marine advisory service paul starr their entry has been met by hostility and violence from existing shrimpers who recognize that they are in an environment characterized by the absence of property rights bay shrimpers have lobbied the texas legislature for broad limits on new entrants yet ironically the sale of additional boats by individual shrimpers to the vietnamese has facilitated entry of the refugees into the fishery regulations in the texas shrimp and other fisheries are incomplete leaving many options for rent dissipation uncontrolled because of high contracting costs among fishermen and political factors that mold government actions contracting costs are high among heterogeneous fishermen who vary principally with regard to fishing skill 3 montana state university and texas a m university respectively we benefitted from comments by terry anderson raymond c battalio gardner brown oscar burt micha gisser wade griffin john r moroney anthony d scott peter temin and participants in workshops at texas a m university and the university of washington research assistance was provided by scott barnhart and phil mizzi funding was provided by sea grant texas a m university throughout this paper we use the terms common property and open access interchangeably here the terms describe a situation where no property rights group or individual exist s for the resource 2catch per unit of effort in the inshore texas gulf and federal gulf waters is presented for 1963 77 by w l griffin c g tydlacka and w e grant they show catch per unit of effort generally falling in inshore and offshore waters while catch per unit of effort fluctuates from year to year it falls from approximately 360 kg shrimp per unit of effort to 220 kg from 1963 to 1977 the common property nature of the fishery is reflected in the following statistics since 1975 the number of vessels has grown by 23 percent nelson swartz for fish houses the record of entry is similar between 1970 a d 1977 the number of firms grew from 259 to 287 though during that period many left the industry as others entered the number of fish houses was calculated from license data supplied by the texas parks and wildlife department the record of entry by fish houses suggests that monopsony as discussed by colin clark and gordon munro is absent in the fishery 3there may be minor differences in labor leisure choices and capital but our statistical evidence and discussions with fishermen indicate that catch variations are largely due to skill government regulations in the texas bays restrict capital and our empirical evidence shows boats to be relatively homogeneous

an analysis of value destruction in at t s acquisition of ncr abstract at t s 7 5 billion acquisition of ncr decreased the wealth of at t shareholders by between 3 9 billion and 6 5 billion and resulted in negative synergies of 1 3 to 3 0 billion we find that at t paid a documented 50 million and possibly as much as 500 million to satisfy pooling accounting thus boosting eps by roughly 17 but leaving cash flows unchanged we conclude that at t s decision to acquire ncr in what the market perceived as a value destroying transaction was related at least in part to the 1984 consent decree with the department of justice that led to the break up of at t

resource rent in individual quota fisheries traditional fisheries management schemes generate incentives for vessels to maximize catch resulting in rent dissipation and overcapacity individual vessel quota management schemes change the incentives to maximize profit and have the potential to generate resource rent and reduce capacity an interesting question is whether it is the changed incentives due to individual quota or the capacity reduction due to transferability of individual quota that is most important in generating rent in this study a cost function approach is used to model and measure rent generated and potential rent in a fishery managed with individual vessel quotas

bias and the commitment to disclosure this paper studies the propensity of firms to commit to disclose information that is subsequently biased in the presence of other firms also issuing potentially biased information an important aspect of such an analysis is the fact that firms can choose whether to disclose or withhold information we show that allowing the number of disclosed reports to be endogenous introduces a countervailing force to some of the empirical predictions from the prior literature for example we find that as more firms issue reports or as the correlation across firms cash flows increases the firm biases its report less however when we treat firms disclosure choices as endogenous we show that the number of firms that commit to disclose decreases as the correlation across these cash flows increases and this in turn offsets the direct effect of the correlation on bias this paper was accepted by mary barth accounting

on the relation between conservatism in accounting standards and incentives for earnings management this paper studies the role of conservative accounting standards in alleviating rational yet dysfunctional unobservable earnings manipulation we show that when accounting numbers serve both the valuation role in which potential investors use accounting reports to assess a firm s expected future payoff and the stewardship role in which current shareholders rely on the same reports to monitor their risk averse manager current firm owners have incentives to engage in earnings management such manipulation reduces accounting numbers stewardship value and leads to inferior risk sharing we then show that risk sharing and hence contract efficiency can be improved under a conservative accounting standard where absent earnings management accounting earnings represent true economic earnings with a downward bias compared with under an unbiased standard where absent earnings management accounting earnings represent true economic earnings without bias

informed trading investment and welfare this article studies the welfare economics of informed stock market trading we analyze the effect of more informative prices on investment given that this dependence will itself be reflected in equilibrium prices while a higher incidence of informed speculation always increases firm value through a more informative trading process the effect on agents welfare depends on how revelation of information changes risk sharing opportunities in the market greater revelation of information that agents wish to insure against reduces their hedging opportunities on the other hand early revelation of information that is uncorrelated with hedging needs allows agents to construct better hedges