One hesitates to write history as it happens, or to draw policy lessons from current events. The conference took place in May 2008 - after the government-assisted takeover of Bear Stearns but before a capital market downturn fueled a system-wide liquidity crisis, with successive insolvencies at IndyMac, Fannie Mae, Freddie Mac, Lehman, AIG, WaMu, and, as I write, Citigroup. But it would be odd to comment on capital market regulation without mentioning the events of the last three months. I am first to acknowledge that anything I might have written in May would not have foreseen the crisis or linked capital market regulation to financial institutions, which in the US have been conventionally treated as discrete in discourse and institutions (e.g., U.S. Treasury 2008; Leuz and Wysocki 2008).

This study investigates whether associations consistent with LIFO-FIFO tax incentives exist between management choices to adopt or not adopt the LIFO inventory costing method and characteristics of firms' year-end inventories. Both pre- and postchoice characteristics are ex- amined. Because the LIFO-FIFO choice is voluntary, a postchoice association would be consistent with managers both anticipating future inventory characteristics when making a LIFO-FIFO choice and changing inventory management policies in response to that choice. Evidence consistent with the hypothesis that LIFO adoptions are associated with changes in inventory management policies would have important macroeconomic implications. Zarnowitz and Moore [1977] have argued that a failure to recognize the major shift in inventory costing methods which occurred in 1973 and 1974 (primarily FIFO to LIFO) resulted in an underestimation of inventory accumulations by the U.S. Department of Commerce. This underestimation resulted from the different procedures used under LIFO and FIFO to assign costs to inventory units. While this effect of LIFO-FIFO choices can bias macroeconomic measurements and forecasts, an associated change in inventory management policies by a large number of firms could directly affect underlying macroeconomic stocks and flows.

Annual shareholder meetings provide an opportunity for shareholders to express their concerns with corporate performance, pressuring managers to demonstrate good performance. We show that managers respond to the shareholder pressure by reporting positive corporate news before the annual shareholder meetings. Specifically, we find significantly positive average cumulative abnormal returns (CARs) during the 40 days before the annual meeting date. The premeeting returns are significantly higher when shareholder discontent with managerial performance is likely to be stronger. The decile of companies with the worst past stock price performance exhibits average CARs of 3.4% and buy-and-hold returns of 7.0% during the 40-day premeeting period. Companies with poor past performance exhibit even higher premeeting returns when shareholder pressure on management is greater, such as when institutional ownership is high, when CEO compensation is high, and when shareholders submit proxy proposals on corporate governance. We complement the evidence based on CARs by showing how managers of poorly performing firms manage the timing and content of earnings announcements and management forecast announcements before the annual shareholder meetings. Overall, the results suggest that managers attempt to influence shareholders before annual shareholder meetings through positive news.

We show that the cost of trading on negative news, relative to positive news, increases before earnings announcements. Our evidence suggests that this asymmetry is due to financial intermediaries reducing their exposure to announcement risks by providing liquidity asymmetrically. This asymmetry creates a predictable upward bias in prices that increases preannouncement, and subsequently reverses, confounding short‐window announcement returns as measures of earnings news and risk premia. These findings provide an alternative explanation for asymmetric return reactions to firms' earnings news, and help explain puzzling prior evidence that announcement risk premia precede the actual announcements. Our study informs methods for research centering on earnings announcements and offers a possible explanation for patterns in returns around anticipated periods of heightened inventory risks, including alternative firm‐level, industry‐level, and macroeconomic information events.

We study determinants of internal control reporting decisions under Section 404 of the Sarbanes‐Oxley Act (SOX 404) using a sample of restating firms whose original misstatements are linked to underlying control weaknesses. We find that only a minority of these firms acknowledge their existing control weaknesses during their misstatement periods, and that this proportion has declined over time. Further, the probability of reporting existing weaknesses is negatively associated with external capital needs, firm size, non‐audit fees, and the presence of a large audit firm; it is positively associated with financial distress, auditor effort, previously reported control weaknesses and restatements, and recent auditor and management changes. These results provide evidence that detection and disclosure incentives play a role in whether existing material weaknesses are reported, which has implications for the effectiveness of SOX 404 in providing investors with advance warning of potential accounting problems.

Maureen McNichols, Patricia C. O'Brien, Self-Selection and Analyst Coverage, Journal of Accounting Research, Vol. 35, Studies on Experts and the Application of Expertise in Accounting, Auditing, and Tax (1997), pp. 167-199

Gary C. Biddle, Frederick W. Lindahl, Stock Price Reactions to LIFO Adoptions: The Association between Excess Returns and LIFO Tax Savings, Journal of Accounting Research, Vol. 20, No. 2, Part II (Autumn, 1982), pp. 551-588

Auditors are faced with the task of formulating opinions about the fairness of their clients' financial statements. In doing so, they use their professional judgment to determine the type and amount of information to collect, the timing and manner of collecting it, and the implications of the information collected. This information is rarely, if ever, perfectly reliable or perfectly predictive of the "true" state of a client's financial statements. Nevertheless, auditors may be held liable at common law or under the federal securities laws should the audited financial statements prove to be unrepresentative of this true state. Thus, it is important for auditors to have the ability to formulate appropriately judgments based on probabilistic data. In this paper, we describe the results of experiments designed to assess whether auditors formulate judgments in accordance' with normative principles of decision making or whether a particular alternative to the normative model of decision making under uncertainty 's employed. In the next section, we discuss several alternatives to normative decision models, focusing on the anchoring and adjustment heuristic which forms the basis for our experiments.

The primary purpose of this paper is to test for the use of the representativeness heuristic by auditors in situations in which its use will lead to judgments that systematically depart from the Bayesian optimal responses. No explicit representation of payoffs was made, nor were subjects typically asked to choose a course of action. Thus it cannot be concluded that use of the representativeness heuristic in the experimental situations tested is not cost effective. To the extent, however, that one is willing to assume that action choices are sensitive to judgments of outcome probabilities, and these action choices have differential expected payoffs, a finding of extensive heuristic use by auditors would suggest further research to assess the economic consequences of such use.

Kevin C. W. Chen, Michael P. Schoderbek, The 1993 Tax Rate Increase and Deferred Tax Adjustments: A Test of Functional Fixation, Journal of Accounting Research, Vol. 38, No. 1 (Spring, 2000), pp. 23-44