[This study uses the relation between firm leverage and systematic risk to provide empirical evidence on the economic substance of a hybrid security: redeemable preferred stock (RPFD). The tests are conducted on 239 firms with RPFD outstanding between 1979 and 1989 and examine variation in this relation conditioned on the magnitude of RPFD as an element of firms' capital structures. The empirical results suggest that, despite mandatory redemption payments, RPFD does not have a debt-like impact on systematic risk and that the market perception of a hybrid security is conditioned on attributes such as voting rights and conversion features. Thus, dichotomous classification of hybrid securities may lack representational faithfulness to the economic substance of these securities, as measured by their effects on systematic risk. More generally, it may be difficult for the FASB to develop a comprehensive classification rule for hybrid securities without requiring additional disclosure of important security attributes.]

[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.]

Examines possible determinants of firms' decisions to reduce benefits of retiree health care plans. Increasing contracting cost caused by the financial reporting consequences of Statement on Financial Accounting Standards SFAS No. 106; Financial weakness independent of SFAS No. 106; Firm-specific changes in retiree health care costs.

[This paper 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. Two experiments were performed in a tax setting. The results indicate that (1) when a verbal standard is in place, tax practitioners use the latitude inherent in a verbal standard to support aggressive reporting decisions, and (2) when a numerical standard is in place, tax practitioners use instead the latitude available in assessing evidential support to justify an aggressive reporting decision. This shift in incentive effect is pronounced enough to render reporting decisions made under the numerical standard as aggressive as reporting decisions made under the verbal standard. These results indicate that replacing verbal thresholds with numerical thresholds may not diminish the aggressiveness of reporting decisions.]

[The purpose of this study is to determine the prevalence, magnitude and timing of retiree health care benefit reductions and to identify determinants of the benefit-reduction decisions. Three explanations for these benefit reductions are examined: (1) increased contracting cost caused by the financial reporting consequences of SFAS No. 106, (2) financial weakness independent of SFAS No. 106 and (3) firm-specific increases in retiree health care costs. Strong support for the increased contracting cost hypothesis is found after controlling for industry, financial weakness and firm-specific changes in retiree health care costs. However, the results also indicate that firms cutting benefits are financially weaker and have higher retiree health care costs at the time benefits are reduced. Therefore, SFAS No. 106 cannot be viewed as the sole cause of the health care benefit reductions.]

Presents empirical evidence on the economic substance of the hybrid security redeemable preferred stock (RPFD). Variation in the relation between firm leverage and systematic risk; RPFD's impact on systematic risk; Factors affecting market perception of RPFD.

Examines whether the consequences arising from renegotiation of lending agreements are priced in the market. Technical default; Wealth losses from higher costs of borrowing and restrictions on firms' opportunities; Stock price declines; Debt covenant violation.

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.