I provide evidence that loan loss accounting affects procyclical lending through its impact on regulatory actions. Regulators are more likely to place banks with inadequate loan loss allowances under enforcement actions that restrict lending, leading these banks to lend less during downturns. Further, I find that banks with lower regulatory ratings lend less when they have more timely provisions, consistent with research theorizing that timely provisions increase transparency and inhibit regulatory forbearance. This regulatory action mechanism expands on prior research that has focused on the effect of loan loss recognition on regulatory capital adequacy during economic downturns.

This study estimates the corporate tax savings from financial derivatives. I document a 3.6 and 4.4 percentage point reduction in three-year current and cash effective tax rates (ETRs), respectively, after a firm initiates a derivatives program. The decline in cash ETR equates to 10.69 million in tax savings for the average firm and 4.0 billion for the entire sample of 375 new derivatives users. Of these amounts, 8.75 million and 3.3 billion, respectively, are incremental to tax savings that theory suggests are a byproduct of risk management. Collectively, these findings provide economic insight into the prevalence of derivatives-based tax avoidance.

Using a unique empirical setting, family firms in the S&P 500, Ali et al. [Ali, A., Chen, T.-Y., Radhakrishnan, S., 2007. Corporate disclosures by family firms. Journal of Accounting and Economics, doi:10.1016/j.jacceco.2007.01.006] contribute to a growing body of research on the relation between corporate governance and corporate disclosure quality. Using an indicator variable for sub-sample membership as an instrument for differing agency costs, the authors interpret their findings as consistent with family firms facing lower overall agency costs and providing higher quality corporate disclosures. However, their empirical findings are open to alternative interpretations and in totality present relatively weak, indirect evidence of a relation between corporate governance and the quality of corporate disclosure.

This paper examines the shareholders’ perceptions of the costs and benefits associated with the use of pooling-of-interests. The paper focuses on the market's reaction to the SEC's adoption of SAB 96. This regulation-forced firms to chose between using pooling-of-interests and maintaining their share repurchase programs. Overall, the results suggest shareholders perceive there to be a net cost when managers choose to use pooling-of-interests. These findings should be of particular interest to regulators, practitioners and researchers.

I review empirical research on the relation between capital markets and financial statements. The principal sources of demand for capital markets research in accounting are fundamental analysis and valuation, tests of market efficiency, and the role of accounting numbers in contracts and the political process. The capital markets research topics of current interest to researchers include tests of market efficiency with respect to accounting information, fundamental analysis, and value relevance of financial reporting. Evidence from research on these topics is likely to be helpful in capital market investment decisions, accounting standard setting, and corporate financial disclosure decisions.

This paper analyzes the repricing of employee stock options after market-wide crash. The model identifies sufficient conditions for renegotiation to be optimal and for optimal compensation to be a fixed salary plus stock options. Empirical results support the renegotiation prediction. Stock opition grants increase in both number and value after the 1987 crash. Firms with underwater options grant significantly more options post-crash than pre-crash, whereas firm with in-the-money options don't. Furthermore, firms suffering the largest impact from the crash are the most likely to increase grants after the crash.

The paper analytically evaluates alternative specifications of price-earnings regressions when prices lead earnings, i.e., reflect information about future earnings that is not reflected in the past time series of earnings. Because prices lead earnings, the specification using the earnings-level-deflated-by-price variable in a price-earnings regression is ‘better’, in terms of bias in the estimated earnings response coefficient and explanatory power, than specifications using earnings-change-deflated-by-price and earnings-deflated-by-lagged-earnings variables. An accurate proxy for unexpected earnings, however, outperforms the earnings-level- and earnings-change-deflated-by-price specifications.

We examine the effect of personal taxes on CEOs’ decisions to sell their equity, controlling for diversification, managerial overconfidence, and other determinants. While CEOs frequently sell large amounts of their unrestricted firm equity, the tax burden associated with the sale significantly deters them from selling equity even after controlling for other determinants like diversification. We also find that both taxable institutional investors and CEOs respond to taxes in their selling of equity, although CEOs appear to be less tax-sensitive. Our findings underscore the importance of taxes in corporate and managerial decisions and they have implications for executive compensation policies.

This paper examines the effect of managerial legal liability coverage on earnings conservatism. Using directors’ and officers’ (D&O) liability insurance coverage and cash for indemnification as a proxy for managerial legal liability coverage, we find that the higher the managerial liability coverage, which reduces the expected legal liability of managers, the less conservative the firm's earnings. We also find that managerial legal liability coverage has a stronger influence on earnings conservatism in a legal regime with higher litigation risk. Our results are consistent with the threat of litigation conditioning managers to practice conservative accounting.