Using unique data on brokerage-firm trading, I examine whether analysts' earnings forecasts and stock recommendations affect their brokerage firms' share of trading in the forecast stocks. I find that individual analyst's forecasts that differ from the consensus forecast generate significant brokerage-firm trading in the forecast stocks in the two weeks after the forecast release date, affirming that analysts' forecasts affect their brokers' commission revenue. However, I find no evidence that analysts' forecast errors—the difference between forecast earnings and actual earnings—increase brokerage-firm trading. This result suggests that analysts cannot generate trade for their employers simply by adding error to their forecasts. I find that buy recommendations generate relatively more trading, both buying and selling, through the analyst's brokerage firm. Collectively, these results suggest that analysts can generate higher trading commissions through their positive stock recommendations than by biasing their forecasts.

Prior research reveals that write-offs of long-lived assets are both large in magnitude and frequent in occurrence. Responding to calls for enhanced reporting of these items, the FASB issued SFAS No. 121, Accounting for the Impairment of Long-Lived Assets. However, its effect on the characteristics of reported write-offs remains unclear, as implementation requires inherently subjective estimates. Further, critics (including dissenting FASB board members and the SEC) question the standard's guidance. Motivated in part by this debate, this paper contrasts the characteristics of write-offs reported prior versus subsequent to the issuance of SFAS No. 121. Empirical results reveal that economic factors have a weaker association with write-offs reported after SFAS No. 121. This is consistent across macro, industry, and firm-specific variables. Results also indicate a higher association between write-offs and “big bath” reporting behavior after the standard's implementation, and that this “big bath” behavior more likely reflects opportunistic reporting by managers rather than the provision of their private information. These inferences are robust to a number of alternative specifications and variable definitions. Overall, the results suggest the reporting of write-offs under SFAS No. 121 has decreased in quality, consistent with criticisms of the standard.

Using a common agency model, we investigate the interactions of a utility-maximizing auditor (the agent) with managers (who hire the agent for nonaudit services) and shareholders (who hire the agent for conducting an audit) of the same firm. In a single-period model, managerial discretion over consulting and other nonaudit service fees can influence auditors to issue unqualified opinions on reports that are more favorable than warranted. Shareholders, represented by an audit committee, cannot recover truth-telling. Removing the current restriction on contingent audit fees allows audit committees to offset the incentives provided by management and instead provide the auditor incentives to accept only truthful reports. Extending the model to a multiperiod framework, the audit committee can motivate truth-telling by making retention decisions that are contingent on outcome. Auditors will consider the impact of overreporting on their ability to generate future audit fees from the same client.

The balanced scorecard provides a framework for selecting multiple performance measures that supplement traditional financial measures with operating measures of customer satisfaction, internal processes, and learning and growth activities. An essential aspect of the balanced scorecard lies in its articulation of the linkage between performance measures and business strategy. This study conducts an experiment to assess how individuals' evaluations of the performance of business unit managers depend on strategically linked performance measures of a balanced scorecard. Statistical test results indicate that performance evaluations are influenced by strategically linked measures more than non-linked measures only when evaluators are provided detailed information about business unit strategies. The results also confirm Lipe and Salterio's (2000) finding that evaluators rely more on common measures than on unique measures. Evaluators rely more on strategically linked measures than on common measures when they are provided information on strategic linkages, but the reverse relation holds when they are not.

This paper investigates the effect of regulation that mandates open access to information on managers' disclosure choices and investors' reactions to disclosures. The recently passed Regulation FD (Reg FD) requires firms to make material disclosures broadly available. Using a sample of firms that previously restricted access to conference calls and a sample of firms that voluntarily allowed unlimited access to their calls in the pre-Reg FD period, we examine the effect of the new rule on managers' decisions regarding the timing, use, and information content of calls, as well as the effect on investors' trading behavior during the call. Our results indicate that Reg FD had a significant negative impact on managers' decisions to continue hosting conference calls and on their decisions regarding the optimal time to hold the call. However, contrary to the concerns of many critics, the magnitudes of these changes are not large. We do not find evidence that Reg FD decreased the amount of information disclosed during the call period, contrary to the concerns of Reg FD opponents. Finally, we find evidence that the new rule increased price volatility for firms that previously restricted access to their calls (relative to firms that previously held open calls) and that the amount of individual investor trading increased following the rule change. Overall, our results suggest that Reg FD impacted trading during the conference call window for firms most affected by the new regulation.