[This paper examines whether firms exhibiting improved inventory utilization subsequent to JIT adoption achieve a corresponding increase in their Return on Assets (ROA) and whether firm-specific characteristics affect such ROA responses. On average, we do not find a significant ROA response to JIT adoption. Cross-sectionally, JIT adopting firms with a diffuse customer base have a superior ROA response relative to both adopting firms with a high degree of customer concentration and their matched control firms. Evidence is consistent with a superior ROA response for firms with lower inventory turns in the adoption year, particularly for work-in-process inventory. Data do not support the prediction that firms with lower committed costs will report a greater ROA response than firms with a higher proportion of committed costs.]

This paper evaluates the real effects of the new lease standard, ASC 842, on firms’ investment and operational outcomes. Using a sample of airline companies, we find that, subsequent to the promulgation of ASC 842 (2016–2018), public airlines reduce operating lease usage by about seven to ten percentage points relative to private airlines. The reduced lease usage is replaced by increased ownership, suggesting an equilibrium shift in firms’ investment due to changes in the cost-benefit tradeoffs associated with the operating lease classification. We also find evidence that the decline in lease usage hinders public airlines’ operational flexibility, as we observe more idle capacity in flights post-ASC 842. Facing excess capacity, public airlines seem to deploy their aircraft to shorter flying routes, raising the possibility of more wear and tear on the fleet. Overall, our evidence suggests that the new lease standard has intended and unintended real effects. Data Availability: Data are available from the public sources cited in the text.

We reexamine the relative importance of earnings and operating cash flows in equity valuation. In contrast to previous studies that use stock returns (Dechow 1994) or future operating cash flows (Barth et al. 2001), we use ex post intrinsic value of equity as the criterion for comparison. We determine ex post intrinsic value of equity by discounting future dividends over a three-year horizon and market price at the end of the horizon by industry cost of equity. The advantage of the ex post intrinsic value measure over stock returns is that it is not contaminated by the stock market's fixation on reported earnings (Sloan 1996). Also, unlike finite horizon future operating cash flows, ex post intrinsic values better reflect the magnitude, timing, and uncertainty of investors' future cash flows (SFAC No. 1, FASB 1978). Our results suggest that accrualbased earnings dominate operating cash flows as a summary indicator of ex post intrinsic value.

This paper explores the role of textual disclosures in the Management, Discussion, and Analysis (MD&A) section of a firm's SEC 10-K filing in predicting a firm's ability to continue as a going concern. Using a sample of firms that filed for bankruptcy between 1995 and 2012 to identify firms that cease as a going concern, we find that both management's opinion about going concern reported in the MD&A and the linguistic tone of the MD&A together provide significant explanatory power in predicting whether a firm will cease as a going concern. Moreover, the predictive ability of MD&A disclosure is incremental to financial ratios, market-based variables, and even the auditor's going concern opinion. We also find that the incremental predictive ability of MD&A disclosures extends to three years prior to bankruptcy.

A growing literature investigates the association between stock return variation and several aspects of information and governance structures, in both a cross-country setting and a cross-firm setting within the U.S. Papers use either idiosyncratic stock return volatility or R2 as interchangeable measures of firm-specific return variation but report inconsistent results. An important reason for the differing interpretations is the assumption about whether lower R2 (or higher ) captures firm-specific news or noise. We document that higher (or equivalently, lower R2) resembles noise. In addition, we show, analytically and empirically, that different results obtain when using R2 or because the systematic risk inherent in the R2 metric is also correlated with the independent variable of interest. Therefore, we recommend that when assessing the association between R2 (or ) and some independent variable, researchers (1) control for elements of systematic risk and (2) triangulate their findings with other measures of information environment. Data Availability: The data in this study are available from commercial providers, e.g., WRDS, Compustat, CRSP, I/B/E/S.

We consider stock markets in 20 countries to investigate whether the accrual anomaly (Sloan 1996), characterized by U.S. stock prices overweighting the role of accrual persistence, is a local manifestation of a global phenomenon.We explore whether the occurrence of the anomaly is related to country differences in accounting and institutional structures, and examine alternative explanations for its occurrence. We find stock prices overweight accruals in general, with accruals overweighting occurring in countries with a common law relative to a code law tradition. Using firmlevel data on a country-by-country basis, we document the occurrence of the anomaly in four countries, Australia, Canada, the U.K., and the U.S., and also in a sample of American Depository Receipts (ADRs) of firms domiciled in countries where we do not detect the anomaly. Using country-level data, we confirm the anomaly is more likely to occur in countries having a common law tradition, and also in countries allowing extensive use of accrual accounting and having a lower concentration of share ownership. Additional analyses reveal that earnings management and barriers to arbitrage best explain the anomaly.

We investigate whether the accruals anomaly is a manifestation of the glamour stock phenomenon documented in the finance literature. Value (glamour) stocks, characterized by low (high) past sales growth, high (low) book-to-market (B/M), high (low) earnings-to-price (E/P), and high (low) cash flow-to-price (C/P), are known to earn positive (negative) future abnormal returns. Note that “C” or cash flow is operationalized in the finance literature as earnings adjusted for depreciation. Sloan (1996) shows that firms with low (high) total accruals earn positive (negative) future abnormal returns. We find that a new variable, operating cash flows measured as earnings adjusted for depreciation and working capital accruals, scaled by price (CFO/P) captures mispricing attributed to the four traditional value-glamour proxies and accruals. Interpretation of this finding depends on the reader's priors. If the reader believes that value-glamour phenomenon can be operationalized only as C/P, and not CFO/P, then one would conclude that CFO/P is a parsimonious variable that captures the mispricing attributes of two distinct anomalies, value glamour and accruals. However, if a reader views the value-glamour anomaly broadly as a fundamentals-to-price anomaly, then (1) the CFO/P variable can be considered an expanded value-glamour proxy and; (2) our results are consistent with Beaver's (2002) conjecture that the accruals anomaly is the glamour stock phenomenon in disguise.

This paper deepens our understanding of the anatomy of an earnings conference call. Prior research indicates that, on average, analysts providing bullish stock recommendations or beatable earnings forecasts benefit from greater access to corporate management. Therefore, we analyze whether and to what extent individual analysts' ex ante stock recommendations and earnings forecasts affect the information content of analyst-manager conversations. Using intraday absolute stock price reactions around specific analyst-manager dialogs to measure informativeness, we find that manager dialogs with bearish analysts whose forecasts are missed are more informative. Such analysts engage in longer conversations with more back-and-forth iterations and exhibit a more negative tone, relative to bullish analysts that provide beatable forecasts. Stock prices directionally respond to both the analyst's linguistic tone and the manager's voice pitch. In sum, the capital market effects during an earnings conference call are far more nuanced than previously documented.

Using the transition of U.S. firms from annual reporting to semi-annual reporting and then to quarterly reporting over the period 1950–1970, we provide evidence on the effects of increased reporting frequency on firms' investment decisions. Estimates from difference-in-differences specifications indicate that increased reporting frequency is associated with an economically large decline in investments. Additional analyses reveal that the decline in investments is most consistent with frequent financial reporting inducing myopic management behavior. Our evidence informs the recent controversial debate about eliminating quarterly reporting for U.S. corporations.

We examine (1) whether the accounting, governance, and investing practices of Berkshire Hathaway investees are consistent with Warren Buffett's public statements on what constitutes good accounting, governance, and investing practices and (2) whether these practices are associated with Berkshire's initial “selection” or Buffett's subsequent “influence.” Compared to control firms, we find that Berkshire investees are highly likely to follow Buffett's investment philosophy, somewhat likely to follow his preferred accounting, disclosure, and compensation policies, but unlikely to follow the board-related governance practices that we can measure. Second, we find some evidence that the business practices of future Berkshire investees are more aligned with Buffett's beliefs in the pre-investment period compared to control firms. Third, we find relatively modest evidence that investees improve a few of their business practices subsequent to Berkshire's initial investment. However, and overall, Buffett does not appear to be especially influential in the subsequent accounting, governance, and investing decisions of Berkshire investees, likely because he has already taken into account the attributes he cares most about in the initial investment decision. Data Availability: Except for the Gunning Fog Index and family firm status, other data in this study are available from commercial providers, e.g., CDA/Spectrum Institutional Money Manager Holdings, Compustat, CRSP.