Owning valuable brands enhances the financial well-being of firms not only through increased revenues and profitability but also by mitigating agency problems, earnings management, and financial reporting irregularities. Firms with high brand equity are less likely to have income-inflating discretionary accruals, announce earnings restatements, or experience SEC investigations. Brand equity reduces the likelihood of manipulation through incentive and opportunity channels, which we capture in CEO characteristics and compensation, and corporate governance measures. Brand equity reduces the likelihood of financial reporting irregularities more for durable goods firms and firms with shorter-tenured CEOs, as the latter are most vulnerable to performance pressures. (JEL G31, G34, M31, M37, M41, M42) Received September 28, 2019; editorial decision May 27, 2020 by Editor Isil Erel.

In this paper I assess the degree of similarity in the cross-sectional pricing of Internet and non-Internet stocks during the tumultuous year of 2000. Despite large differences in their economic fundamentals, I find that the equity market values of Internet firms with immaterial web traffic, firms that are randomly selected, and firms that went public at the same time as Internet firms are similarly related to analysts' forecasts of earnings in 2001 and the long-term rate of growth in earnings. This is not the case for firms with intensive web traffic. I also find that at the peak of Internet prices in March 2000 the market rewarded losses of web-traffic-intensive firms but did not reward profits, while after the peak the market reversed its view, rewarding profits but not losses. Beyond earnings, web traffic is significantly positively priced both at and after the Internet peak. However, I find no evidence that two proxies for supply and demand forces – the degree of public float and short interest – are value-relevant for Internet firms. Overall, I argue that there are enough similarities in the cross-sectional pricing of Internet and non-Internet firms to make it unlikely that the pricing of Internet stocks during 2000 was entirely irrational. Moreover, any irrationality in the prices of Internet stocks cannot be linked to public float and short interest.

In this study I empirically examine U.S. publicly traded firms to determine the impact of banking relationships on the future of financially distressed firms. Results demonstrate that obtaining a relationship-backed loan in the six months prior to distress identification significantly increases the probability of future firm emergence from distress. However, this effect decreases as the severity of firm distress increases. These results are robust to variations in banking relationship measures and to addressing endogeneity. This study provides evidence consistent with the value of lending relationships stemming from the ease of transmission of “soft” information within the lender's organization.

We demonstrate the value-relevance of foreign earnings for US multinational firms by examining the associations between annual abnormal stock performance and changes in firms′ domestic and foreign incomes. For 2570 tirm-year observations between 1985 and 1993, both foreign and domestic earnings changes have significant positive associations with annual excess return measures: however, the association coefficient on foreign income is significantly larger than the association coefficient on domestic income. We demonstrate this larger association coefficient for foreign income is consistent with differences in growth opportunities between domestic and foreign operations.

Numerous studies in recent years have emphasized the importance of accounting properly for abandoment value in capital budgeting (see [1], [4], [7], [10], and [11]). For a variety of reasons, a project need be neither physically exhausted nor have negative cash flows to be abandoned. Robichek and Van Home [10] suggested that a project should be abandoned in any period in which the present value of future cash flows does not exceed its abandonment value. In a modification of this rule, Dyl and Long [4] proposed that the firm give consideration to all possible future abandonment opportunities. They argued that abandonment need not occur at the earliest possible date that the abandonment condition is satisfied, but rather at the date that yields the highest NPV over all future abandonment possibilities. A generalization of these models was offered by Bonini [1], who developed a dynamic programming model to analyze investment projects with abandonment possibilities and uncertain cash flows. More recently, Gaumnitz and Emery [7] compared the abandonment decision to the like-for-like replacement decision and noted that the correct model for a particular case depends on the suitability of the assumptions.

George M. Frankfurter, Joanne M. Hill, A Normative Approach to Pension Fund Management, The Journal of Financial and Quantitative Analysis, Vol. 16, No. 4, Proceedings of 16th Annual Conference of the Western Finance Association, June 18-20, 1981, Jackson Hole, Wyoming (Nov., 1981), pp. 533-555

We examine the relative importance of audit firm versus partner decision styles in key audit matter (KAM) reporting. Standard setters intended KAMs to increase the usefulness of the audit report by requiring the partner‐led engagement team to disclose engagement‐specific information about the most significant judgments they made during the audit. However, stakeholders expressed widespread concern that audit firms' longstanding efforts toward standardization would result in generic KAMs at the audit firm level and provide partners little opportunity or incentive for engagement‐specific reporting. We evaluate this high‐stakes tension between standard setters' goals for audit reporting and auditors' deep‐rooted practices by leveraging data from the United Kingdom, which has required partner identification since 2009 and expanded audit reports since 2013. We find that clients sharing the same partner receive KAMs that are 10% more textually similar than clients with different partners. In contrast, clients sharing the same audit firm receive KAMs that are just 2% more textually similar than clients with different audit firms. This implies that partner decision styles are more important in influencing KAM outcomes than audit firm styles. Collectively, our results suggest that partners make unique KAM reporting judgments, countering concerns that audit firms' efforts toward standardization will yield boilerplate KAMs. This evidence extends the literature on expanded audit reporting and partner decision styles and provides valuable insights into a contemporary issue in audit regulation with broader implications for understanding dynamics within the profession.

Leases, Operating lease accounting, Equity risk, Property rights

Executive compensation, Firm performance, Interindustry differences, Stewardship objective