Objectives of Financial Statements-the Trueblood Report, Accounting, Economic decisions, Accounting problems

We document that earnings acceleration, defined as the quarter-over-quarter change in earnings growth, has significant explanatory power for future excess returns. These excess returns are robust to a wide range of previously documented anomalies and a battery of risk controls. The future return predictability appears to be consistent with investors assuming a seasonal random walk model for quarterly earnings and missing predictable implications of earnings acceleration for future earnings growth. Finally, the excess returns from the basic earnings acceleration strategy can be enhanced further by focusing on profit firms, low earnings volatility firms and on specific patterns of earnings acceleration.

Joshua Gans of University of Toronto reviews “Making Wise Decisions in a Smart World: Responsible Leadership in an Era of Artificial Intelligence” by Peter Verhezen. The Econlit abstract of this book begins: “Considers the importance of sound decision-making in the uncertain and turbulent era of artificial intelligence (AI), discussing how organizations can create sustainable value and thrive without harming others.”

George H. Sorter, Martin S. Gans, Opportunities and Implications of the Report on Objectives of Financial Statements, Journal of Accounting Research, Vol. 12, Studies on Financial Accounting Objectives: 1974 (1974), pp. 1-12

Organizational Design and Technology Choice under Intrafirm Bargaining: Comment by Catherine C. de Fontenay and Joshua S. Gans. Published in volume 93, issue 1, pages 448-455 of American Economic Review, March 2003

ABSTRACT Insurance pricing is subject to stricter regulation in some states than others. This cross-sectional variation, coupled with the occurrence of staggered deregulation in several states, enables a powerful test of the political cost hypothesis that managers manipulate accruals to mitigate adverse effects of rate regulation. We show that insurers understate their loss reserve accruals in more regulated regimes, a finding that contrasts with most prior studies documenting expense-increasing accruals in regulatory pricing settings like utilities. We theorize and find evidence that regulator-enabled cartel-like collective rate making leads to premiums being higher than the competitive level. Our results are consistent with accounting manipulation being used to justify deviating from these high rates and showcase a role for accounting in cartel enforcement. JEL Classifications: M41; G18; G22; G32.

This paper provides a theoretical explanation for the persistent use of alphabetical name ordering on academic papers in economics. In a context in which market participants are interested in evaluating the relative individual contribution of authors, it is an equilibrium for papers to use alphabetical ordering. Moreover, it is never an equilibrium for authors always to be listed in order of relative contribution. In fact, we show via an example that the alphabetical name ordering norm may be the unique equilibrium, althoug multiple equilibria are also possible. Finally, we charaterize the welfare properties of the noncooperative equilibrium and show it to produce research of lower quality than is optimal and than would be achieved if coauthors were forced to use name ordering to signal relative contribution.