ABSTRACT This study examines the incremental predictive power of aggregate measures of financial misreporting for recession and real gross domestic product (GDP) growth. We draw on prior research suggesting that misreporting has real economic effects because it represents misinformation on which firms base their investment, hiring, and production decisions. We find that aggregate M-Score incrementally predicts recessions at forecast horizons of five to eight quarters ahead. We also find that aggregate M-Score is significantly associated with lower future growth in real GDP, real investment, consumption, and industrial production. Additionally, our result that aggregate M-Score predicts lower real investment one to four quarters ahead partially accounts for why misreporting predicts recessions five to eight quarters ahead. Our findings are weaker when we use aggregate F-Score as a proxy for misreporting. Overall, this study provides novel evidence that aggregate misreporting measures can aid forecasters and regulators in predicting recessions and real GDP growth. JEL Classifications: M41.

ABSTRACT Advisors frequently have an interest in the decisions their advisees make, forcing advisees to distinguish their advisors' unbiased beliefs from their self-interested bias. This task is likely to be especially hard when psychological forces distort advisors' beliefs to make some of their bias sincerely held. In our first experiment, we show that advisors bias both their recommendations and their own actions toward their persuasion goal, and that advisees are better at distinguishing between the unbiased, sincerely biased, and insincerely biased parts of their advisor's recommendation when they meet face-to-face to discuss, compared with when they receive only a written recommendation. Our second experiment shows that advisees distinguish their advisor's bias from their advisor's unbiased beliefs more accurately when the advisors are asked to provide fact-based information about their own actions. Both experiments show that post-report interactions are more helpful for identifying insincere bias than sincere bias. Data Availability: All raw data (excluding identifiable information), data processing code for tabulated analyses, and full experimental materials are available from the authors.

Abstract The article presents a report of the Committee on Educational Standards. The purpose of accounting education is to prepare students for careers in accounting and in related fields and to prepare them to deal effectively with problems they will face as practicing members of their profession and as responsible citizens of the social and economic community in which they live. In recent years, the pattern of collegiate education for business in the U.S. has received considerable attention. The resulting re-examination of objectives, evaluations of course content, and revisions of curricula have had a major impact on accounting education as an element in the business school program. As the accounting function in modern society grows, the role of the accountant inevitably becomes larger and more important. The demand for well-educated accountants is currently high and promises to remain strong in the foreseeable future. The purpose of this study is to formulate some guidelines pointing to the educational standards that should prevail in any institution of higher education that offers degree programs involving a major in accounting, to the end that one or more degrees in accounting will indicate a standard of educational background and qualification for a professional field.

ABSTRACT We empirically analyze firm‐level uncertainty generated from extreme weather events, guided by a theoretical framework. Stock options of firms with establishments in a hurricane's (forecast) landfall region exhibit large implied volatility increases, reflecting significant uncertainty (before) after impact. Volatility risk premium dynamics reveal that investors underestimate such uncertainty. This underreaction diminishes for hurricanes after Sandy, a salient event that struck the U.S. financial center. Despite constituting idiosyncratic shocks, hurricanes affect hit firms' expected stock returns. Textual analysis of calls between firm management, analysts, and investors reveals that discussions about hurricane impacts remain elevated throughout the long‐lasting high‐uncertainty period after landfall.

ABSTRACT During 2005 to 2007, the SEC ordered a pilot program in which one‐third of the Russell 3000 index were arbitrarily chosen as pilot stocks and exempted from short‐sale price tests. Pilot firms’ discretionary accruals and likelihood of marginally beating earnings targets decrease during this period, and revert to pre‐experiment levels when the program ends. After the program starts, pilot firms are more likely to be caught for fraud initiated before the program, and their stock returns better incorporate earnings information. These results indicate that short selling, or its prospect, curbs earnings management, helps detect fraud, and improves price efficiency.

ABSTRACT The average cash‐to‐assets ratio for U.S. industrial firms more than doubles from 1980 to 2006. A measure of the economic importance of this increase is that at the end of the sample period, the average firm can retire all debt obligations with its cash holdings. Cash ratios increase because firms' cash flows become riskier. In addition, firms change: They hold fewer inventories and receivables and are increasingly R&D intensive. While the precautionary motive for cash holdings plays an important role in explaining the increase in cash ratios, we find no consistent evidence that agency conflicts contribute to the increase.

ABSTRACT We focus on public‐market investor participation to analyze the firm's decision to stay public or go private. The liquidity of public ownership is both a blessing and a curse: It lowers the cost of capital, but also introduces volatility in a firm's shareholder base, exposing management to uncertainty regarding shareholder intervention in management decisions, thereby affecting the manager's perceived decision‐making autonomy and curtailing managerial inputs. We extract predictions about how investor participation affects stock price level and volatility and the public firm's incentives to go private, providing a link between investor participation and firm participation in public markets.

ABSTRACT We analyze an entrepreneur/manager's choice between private and public ownership. The manager needs decision‐making autonomy to optimally manage the firm and thus trades off an endogenized control preference against the higher cost of capital accompanying greater managerial autonomy. Investors need liquid ownership stakes. Public capital markets provide liquidity, but stipulate corporate governance that imposes generic exogenous controls, so the manager may not attain the desired trade‐off between autonomy and the cost of capital. In contrast, private ownership provides the desired trade‐off through precisely calibrated contracting, but creates illiquid ownership. Exploring this tension generates new predictions.

Richard W. Baker, Jr., Leon T. Kendall, Walter C. Nelson, J. Charles Partee, David Fritz, Harry S. Schwartz, Changing Character of the Real Estate Mortgage Markets: Discussion, The Journal of Finance, Vol. 19, No. 2, Part 1: Papers and Proceedings of the Twenty-Second Annual Meeting of the American Finance Association, Boston, Massachusetts, December 27-29, 1963 (May, 1964), pp. 321-333

ABSTRACT We document that managers stockpile excess inventory to mitigate the operational risk posed by labor unions and to maintain bargaining power in labor negotiations. Inventory levels are higher for union firms and are incrementally higher preceding the renegotiation of collective bargaining agreements with unions. Inventory stockpiling at union firms is more salient when capital market pressure for transparency or information spillover from peers constrains managers from using disclosure strategies. We further show that managers weigh the costs and benefits of inventory stockpiling, as holding excess inventory due to the presence of a union is negatively associated with future profitability, but provides the benefits of avoiding a stockout and mitigating negative outcomes from a strike. Our findings highlight the importance of a major stakeholder, i.e., labor, in managers' investment decision making. Data Availability: All data are available from the public/private sources cited in the text. JEL Classifications: G31; J52; J53.