Studies examining managerial accounting decisions postulate that executives rewarded by earnings-based bonuses select accounting procedures that increase their compensation. The empirical results of these studies are conflicting. This paper analyzes the format of typical bonus contracts, providing a more complete characterization of their accounting incentive effects than earlier studies. The test results suggest that (1) accrual policies of managers are related to income-reporting incentives of their bonus contracts, and (2) changes in accounting procedures by managers are associated with adoption or modification of their bonus plan.

This paper examines whether stock Splits convey Information about earnings. The results Indicate that firms split their shares after a significant Increase in earnings. Before the stock split announcement, the market expects these earnings Increases to be temporary. The split announcement leads investors to increase their expectations that the past earnings increases are permanent. The evidence also suggests that the market's reaction to split announcements cannot be attributed to expectations of either future earnings increases or near-term cash dividend Increases.

Research optimism among securities analysts has been attributed to incentives provided by underwriting activities. We examine how analysts’ forecast and recommendation optimism varies with the business activities used to fund research. We find that analysts at firms that funded research through underwriting and trading activities actually made less optimistic forecasts and recommendations than those at brokerage houses, who performed no underwriting. Optimism was particularly low for bulge underwriter firm analysts, implying that firm reputation reduces research optimism. There is also evidence that analysts at retail brokerage firms are more optimistic than those serving only institutional investors. We conclude that analyst optimism is at least partially driven by trading incentives.

Financial reporting and disclosure are potentially important means for management to communicate firm performance and governance to outside investors. We provide a framework for analyzing managers’ reporting and disclosure decisions in a capital markets setting, and identify key research questions. We then review current empirical research on disclosure regulation, information intermediaries, and the determinants and economic consequences of corporate disclosure. Our survey concludes that current research has generated a number of useful insights. We identify many fundamental questions that remain unanswered, and changes in the economic environment that raise new questions for research.

We examine operating performance and ownership of joint venture and wholly-owned merchant banks operating in Singapore from the formation of the industry to its maturity. For our sample, joint ventures dominated wholly-owned banks as an organizational form only within the first six years of the industry's life, when there were opportunities for organizational learning and risk sharing by venture partners. Thereafter, new banks were typically wholly-owned subsidiaries and 71% of surviving joint ventures switched to wholly-owned status. Despite their higher mortality rates, we find no evidence of lower performance for joint ventures.

We examine investor communication issues using the experience of CUC International. CUC had difficulty convincing investors that its marketing outlays were profitable investments, leading to stock misvaluation over an extended period. To resolve this problem, CUC adopted an accounting change and then underwent a leveraged recapitalization. Subsequently, it accelerated recap debt repayments and initiated a stock repurchase. CUC's experience suggests that accounting reports are not always effective in investor communication. While financial signals are more effective, their impact is not as immediate as predicted by prior research. The CUC case suggests that investor communications is a rich area for future research.

Firms that initiate dividend payments have positive earnings changes both before and after the dividend policy change, while those omitting dividend payments have negative earnings changes. Subsequent earnings changes are positively related to the dividend announcement return, and stock price reactions at subsequent earnings announcements are smaller than usual, suggesting that these earnings changes are partially anticipated at the dividend announcement. The results indicate that investors interpret announcements of dividend initiations and omissions as managers' forecasts of future earnings changes.

This paper investigates whether firms benefit from expanded voluntary disclosure by examining changes in capital market factors associated with increases in analyst disclosure ratings for 97 firms. The disclosure rating increases are accompanied by increases in sample firms' stock returns, institutional ownership, analyst following, and stock liquidity. These findings persist after controlling for contemporaneous earnings performance and other potentially influential variables, such as risk, growth, and firm size. While it is difficult to draw unambiguous causal conclusions, these results are consistent with disclosure model predictions that expanded disclosure leads investors to revise upward valuations of the sample firms' stocks, increases stock liquidity, and creates additional institutional and analyst interest in the stocks.

This paper examines the effect of accounting procedure changes on cash salary and bonus compensation to CEOs. We estimate whether there is an adjustment to the statistical relation between compensation and corporate earnings following changes that lower earnings (FIFO to LIFO inventory valuation) and that raise earnings (accelerated to straight-line depreciation). The results indicate that (1) subsequent to these changes salary and bonus payments are based on reported earnings, rather than earnings under the original accounting method, and (2) the potential compensation effect of the changes is small compared to the effect of economy- or industry-wide changes in compensation.

This paper examines whether firms emerging from conglomerate stock breakups are able to affect the types of financial analysts that cover their firms as well as the quality of information generated about their performance. Our sample comprises 103 focus‐increasing spin‐offs, equity carve‐outs, and targeted stock offerings between 1990 and 1995. We find that, after these transactions, sample firms experience a significant increase in coverage by analysts that specialize in subsidiary firms’ industries, and a 30–50% increase in analyst forecast accuracy for parent and subsidiary firms. The improvement in forecast accuracy is partially attributable to expanded disclosure. However, forecast improvements for specialists exceed those for non‐specialists, leading us to conclude that corporate focus can facilitate improved capital market intermediation by financial analysts with industry expertise.