I first distinguish the terms economic growth, economic development, and sustainable development. I then discuss the term ESG and why this term is used with respect to the corporation. I follow with a discussion of the shareholder primacy perspective and how this perspective plays a defining role in corporate law, corporate governance, and asset management. I argue that the shareholder primacy perspective is not appropriate for sustainability reporting because when a firm pollutes the environment, reduces biodiversity, or has inequitable social policies, it does not bear the full cost of its action; society and the planet does. Therefore, providing sustainability disclosures that are relevant to investors misses the point that sustainability disclosures are motivated by the desire of other stakeholders to learn about externalities. I discuss the different standard setters in the sustainability space and how accounting and measurement play key roles. I close with a discussion of research opportunities. Data Availability: Data are publicly available from sources indicated in the text.

Relative to recording securitizations as collateralized borrowings, the “gain on sale” treatment has several accounting benefits such as reducing leverage, increasing earnings, and improving efficiency. We investigate whether managers engage in real transaction management to take advantages of these benefits. We predict that in order to maximize financial statement window-dressing, managers will engage in securitizations toward the end of the quarter. We find that 41 percent of the quarter's transactions occur in the third month of the quarter and almost half of these occur in the last five days of the quarter. In addition, we show that when firms report securitization gains sufficient to beat earnings thresholds, the securitization transactions are more likely to have occurred in the last five days of the quarter. We also document that the impact of securitizations on leverage is large and material for many firms. Our results suggest that window-dressing the financial statements appears to be a valuable side-benefit of engaging in securitization transactions.

We investigate the determinants of analysts' target price implied returns and the implication of our findings for investment decision-making. We identify four broad sets of factors that help explain the cross-sectional variation in target price implied returns: future realized stock returns, errors in forecasting fundamentals, errors in forecasting the expected return to risk, and biases relating to analysts' incentives. Our results suggest that all four sets help explain target price implied returns, with errors in forecasting the expected return to empirical risk proxies having the greatest impact. Collectively, these variables explain nearly a quarter of the cross-sectional variation in target price implied returns. We use our model to predict the optimistic bias in target price implied returns and evaluate whether investors correctly ignore the predictable bias. The results suggest that investors make similar valuation errors to analysts and/or do not perfectly back out the predicted bias in target prices.

We investigate analysts' motives for rounding annual EPS forecasts (placing a zero or five in the penny location of the forecast). We first show that an intuitive reason for analysts to engage in rounding is in circumstances where the penny digit of the forecast is of less economic significance. By rounding, analysts reveal that their forecasts are not intended to be precise to the penny. We also show that analyst incentives impact the likelihood of rounding. Specifically, we predict that analysts will exert less effort forecasting earnings for firms that generate less brokerage or investment banking business since such firms create less value for the analysts' employers. As a consequence of this reduced effort and attention, the analyst will be more uncertain about the penny digit of the forecast and so will round. Our results are consistent with this prediction. One implication of our findings is that a rounded forecast is a simple and easily observable proxy for a more noisy measure of the market's expectation of earnings. Consistent with this implication, we show that rounded forecasts bias down earnings response coefficients at earnings announcements.

We hypothesize that one way accounting practices spread is through law firm connections. We investigate this prediction by examining companies that avoided reporting compensation expense by engaging in stock option backdating. We hypothesize that executives engaged in backdating because they were desensitized to its inappropriateness when they learned through their legal counsel that other companies were engaging in this practice. We identify backdating companies through backdating-related restatements of earnings. Using network analysis, we find that backdating companies are highly connected with other backdating companies via shared law firms. Logistic regressions reveal that the odds of a company backdating are 53 to 88 percent higher when its law firm has another client that backdates, and that law firm connections are incremental to board interlocks and geographic location. Finally, law firms with backdating clients have more other clients with “lucky” grants, suggesting that backdating spread to other companies, but only some restated.

This paper suggests a new measure of one aspect of the quality of working capital accruals and earnings. One role of accruals is to shift or adjust the recognition of cash flows over time so that the adjusted numbers (earnings) better measure firm performance. However, accruals require assumptions and estimates of future cash flows. We argue that the quality of accruals and earnings is decreasing in the magnitude of estimation error in accruals. We derive an empirical measure of accrual quality as the residuals from firm-specific regressions of changes in working capital on past, present, and future operating cash flows. We document that observable firm characteristics can be used as instruments for accrual quality (e.g., volatility of accruals and volatility of earnings). Finally, we show that our measure of accrual quality is positively related to earnings persistence.

Suggests that compensation committees adjust earnings-based executive incentive compensation. Annual executive incentive awards background; Hypotheses on the impact of restructuring charges on executives' annual incentive compensation; Description of sample selection and variable measurement.

We investigate the impact of the mixed attribute GAAP measurement model on accrual quality inferences. GAAP rules vary from an income statement “matching” focus to a balance sheet “fair-value” focus. Accrual properties are also affected by the business activity being measured and the activity's recurrence. Furthermore, accrual measurement is affected by managerial estimation error/manipulation. As a consequence, accruals are heterogeneous with predictably different statistical properties. We construct a dataset of more than 100,000 accrual items that Compustat aggregates into data item FOPO. We classify these accruals into 32 types over a 21-year span. We show that variation in persistence for the 32 accrual types is consistent with our predictions concerning GAAP rules. We provide a model of accruals and show that it is implausible for estimation error of reasonable magnitudes to explain this variation. Finally, we develop a measure of reporting consistency and show its impact on accrual quality inferences.

We document that insider trading is significantly higher than normal levels prior to the public disclosure of SEC comment letters relating to revenue recognition. Furthermore, insider trading is triple its normal level for firms with high short positions. We find a small negative return at the comment letter release date and a negative drift in returns of 1 to 5 percent over the next 50 days following the release. We also find that greater pre-disclosure sales are associated with a stronger negative drift. This evidence suggests that insiders appear to benefit from trading prior to revenue recognition comment letters. We investigate whether the delayed price reaction to comment letter releases is due to investor inattention. Consistent with this explanation, we document that comment letters are downloaded infrequently from EDGAR in the days following their public disclosure.