Knowledge that Transforms

Argues that the economic theory of tax reporting predicting taxpayers' responses depends on economic effects and perceptions of horizontal and exchange equity. Experiment resulting into conditions that influence the perceptions of inequity driving taxpayers' reporting decisions.

Analyzes a system of negotiated transfer pricing in which divisions can agree on a simple fixed-price contract and renegotiate this contract on arrival of better information. Provision of effective protection for their specific investments.

Examines the effects of accounting on the use of employee stock options. Value of options granted; Relation between the firm's use of income-increasing accounting methods and probability of issuing stock options.

Investigates whether replacing a standard that employs a vague, verbal disclosure threshold with a standard that employs a more stringent numerical threshold mitigates the aggressiveness of reporting decisions in accounting. Performance in a tax setting; Effect of incentives on the interpretation of vague standards.

Examines the `curse of knowledge' in audit judgment and the extent to which it is mitigated by accountability, experience and counterexplanation. Occurrence of curse of knowledge when individual are unable to disregard information already processed; Audit implications; Debiasing information.

Focuses on the relationship between firms' tendencies to access capital markets and to disclose earnings forecasts. Disclosure tendencies of companies with external financing; Relation between management forecasts and analysts' expectations.

Examines management's discretionary disclosures prior to earnings surprise. Means of informing the investors; Investors' reactions to warnings.

Evaluates alternative accrual-based models for detecting earnings management. Comparison of the specification and power of commonly used test statistics; Application of the models to a random sample of firm-years; Importance of controlling for financial performance when investigating earnings management stimuli that are correlated with financial performance.

[Although costs of default underpin the debt covenant hypothesis, prior research provides limited evidence of their nature, magnitude, and impact on shareholder wealth. We show that announcements of technical default are associated with significant stock price declines. Combining post-default changes in terms of debt contracts with stock returns, we examine whether the consequences arising from renegotiation of lending agreements are priced in the market, and estimate that higher costs of borrowing and new restrictions on firms' opportunities impose wealth losses of 1.4% on shareholders. Leverage measures, frequently used in accounting research as proxies for economic effects of debt contracts, are found to be poor surrogates for default or renegotiation costs.]

[This study examines the association between trading volume and belief revisions. Most trading volume theories suggest that investors' differential belief revisions cause trading volume. A belief revision is differential if it changes the position of an individual's expectation relative to the distribution of expectations held by others. Thus, I use the correlation between the relative positions of individual analysts' current and prior forecasts of earnings to measure differential belief revisions. In a multiple regression analysis, this correlation measure explains trading volume beyond that explained by prior dispersion in forecasts, which is consistent with Karpoff's (1986) prediction that trading is caused by both differential prior beliefs and differential belief revisions.]