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.

Leone, Wu, and Zimmerman [Leone, A., Wu, J., Zimmerman, J., 2005. Asymmetric sensitivity of CEO cash compensation to stock returns. Journal of Accounting and Economics, forthcoming] find that cash compensation (salary and bonus) is more sensitive to price decreases than to price increases. The authors interpret this result as consistent with Boards of Directors exercising discretion to reduce costly ex post settling up in cash compensation. I discuss potential alternative explanations. Specifically, the design of bonus contracts and the placement of the upper bound, and the effect of the Internal Revenue Code Section 162 (m) that limits the deductibility of cash compensation over one million dollars. I also link their results to the managerial power and rent extraction perspective.

This paper explores financial reporting incentives created by an economy's institutional structure. The underlying premise of our analysis is that a country's legal/judicial system, securities laws, and political economy create incentives that influence the behavior of corporate executives, investors, regulators and other market participants. Further, such incentives ultimately shape the properties of reported accounting numbers. We empirically analyze relations between key characteristics of country-level institutions and the asymmetric recognition of economic gains and losses into earnings (i.e., conditional conservatism). We also provide evidence on channels through which specific institutions manifest their influence on observed conservatism.

This paper analyzes the distribution of stock ratings at investment banks and brokerage firms and examines whether these distributions can predict the profitability of analysts’ recommendations. We document that the percentage of buys decreased steadily starting in mid-2000, likely due, at least partly, to the implementation of NASD Rule 2711, requiring the public dissemination of ratings distributions. Additionally, we find that a broker's ratings distribution can predict recommendation profitability. Upgrades to buy (downgrades to hold or sell) issued by brokers with the smallest percentage of buy recommendations significantly outperformed (underperformed) those of brokers with the greatest percentage of buys.