Using a sample of long-term supply contracts collected from SEC filings, I show that hold-up concerns and information asymmetry are important determinants of contract design. Asymmetric information between buyers and suppliers leads to shorter term contracts. However, when longer duration contracts facilitate the exchange of relationship specific assets, the parties substitute short-term contracts with financial covenants in order to reduce moral hazard. Covenant restrictions are more prevalent when direct monitoring is costly and the products exchanged are highly specific. Finally, I find that buyers and suppliers are less likely to rely on financial covenants when financial statement reliability is low.

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.

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.

Until 1974, firms could choose, within GAAP, to capitalize or expense interest costs associated with capital expenditures. The predominant practice had been to treat interest as a period expense. However, in 1974, the Securities and Exchange Commission imposed a moratorium on further adoption of interest capitalization by non-regulated firms. This study empirically examines economic factors potentially influencing firms' decisions to expense or capitalize interest prior to the SEC moratorium. We hypothesize that the choice may be affected by (1) the existence of management compensation agreements tied to reported earnings, (2) debt covenant constraints, and (3) the political costs (for some firms) of reporting higher earnings. When compared to the control group, our findings are that (1) the frequency of explicit management compensation packages was not greater for the interest capitalization group, (2) firms with financial ratios closer to likely debt agreement constraints (on dividends, interest coverage, and leverage) tended to elect interest capitalization, and (3) other than the largest firms in the ‘politically sensitive’ petroleum refining industry, the larger firms were more likely to capitalize interest.

This paper investigates the internal managerial control mechanisms at the disposal of a corporation's compensation-setting board or committee. The hypotheses tested are that both compensation changes and management changes are methods used to control top management, and that the use of these control methods is motivated by changes in the firm's stock price performance. Public data from the period 1977–1980 support our hypotheses. We conclude that the firm's board creates managerial incentives consistent with those of the firm's owners, both by setting compensation and following management change policies which benefit shareholders.

Bloomfield, Marvão, and Spagnolo (2023) establish an interesting yet puzzling finding: Firms in concentrated industries that form cartels are more likely to use relative performance evaluation (RPE) compensation arrangements for their top managers. The paper interprets this as evidence that cartel members constrain managers' incentives to engage in costly sabotage when their compensation depends on their peer firms' performance. I argue that successful costly sabotage to gain an RPE advantage is extremely unlikely and that costly sabotage is more likely among cartel firms than non-cartel firms. It therefore is an unlikely explanation of the paper's main finding. I propose an alternative explanation, that RPE benchmarks include firms that are not cartel member firms.

Armstrong et al. (2022) review the various econometric methods that have been used to draw causal inference in the accounting literature and offer an alternative method for conducting research when causal methods are not applicable. This discussion provides background for the emphasis on causal inference in accounting. It also draws parallels between the authors' proposed quasi-causal method and the structural estimation methods that have been used in finance and that are starting to be used in accounting.

SEC confidential treatment (CT) orders are regulatory exemptions that enable firms to redact proprietary information from SEC filings if the disclosure would cause competitive harm and if the information is immaterial to investors. This study examines the role of firms' political connections in the SEC's decisions to approve versus reject CT requests before and after Congressional intervention and internal SEC scrutiny into the CT process. CT requests from politically connected firms are less likely to be rejected before Congressional intervention and internal SEC scrutiny and are more likely to be rejected following these events. When the SEC rejects CT requests, firms must disclose the contents of the unapproved redactions. These disclosures are informative to investors, on average, and are less informative following Congressional intervention and internal SEC scrutiny. Together, these findings contribute to the literature on political influence in SEC oversight and disclosure regulation and provide unique evidence on the role of Congressional intervention in SEC decision making.