Our simulation results show that tests for long-horizon (i.e.. multi-year) abnormal security returns around firm-specific events are severely misspecified. The rejection frequencies using parametric tests sometimes exceed 30% when the significance level of the test is 5%. Our results are robust to many different abnormal-return models. Conclusions from long-horizon studies require extreme caution. Nonparametric and bootstrap tests are likely to reduce misspecification.

We study standard mutual fund performance measures, using simulated funds whose characteristics mimic actual funds. We find that performance measures used in previous mutual fund research have little ability to detect economically large magnitudes (e.g., three percent per year) of abnormal fund performance, particularly if a fund's style characteristics differ from those of the value‐weighted market portfolio. Power can be substantially improved, however, using event‐study procedures that analyze a fund's stock trades. These procedures are feasible using time‐series data sets on mutual fund portfolio holdings.

We commemorate the 50th anniversary of Ball and Brown [1968] by chronicling its impact on capital market research in accounting. We trace the evolution of various research paths that post–Ball and Brown [1968] researchers took as they sought to build on the foundation laid by Ball and Brown [1968] to create a body of research on the usefulness, timeliness, and other properties of accounting numbers. We discuss how those paths often link back to the groundwork laid and questions originally posed in Ball and Brown [1968].

Investors, regulators, academics, and researchers all emphasize the importance of financial statement comparability. However, an empirical construct of comparability is typically not specified. In addition, little evidence exists on the benefits of comparability to users. This study attempts to fill these gaps by developing a measure of financial statement comparability. Empirically, this measure is positively related to analyst following and forecast accuracy, and negatively related to analysts? dispersion in earnings forecasts. These results suggest that financial statement comparability lowers the cost of acquiring information, and increases the overall quantity and quality of information available to analysts about the firm.

Return models (returns regressed on scaled earnings variables) are commonly preferred to price models (stock price regressed on earnings per share). We provide a framework for choosing between these models. An economically intuitive rationale suggests that price models are better specified in that the estimated slope coefficients from price models, but not return models, are unbiased. Our empirical results confirm that price models' earnings response coefficients are less biased. However, return models have less serious econometric problems than price models. In some research contexts the combined use of both price and return models may be useful.

We find reliable evidence that both book-to-market (B M) and dividend yield track time-series variation in expected real stock returns over the period 1926 91 (in which B M is stronger) and the subperiod 1941–1991 (in which dividend yield is stronger). A Bayesian bootstrap procedure implies that an investor with prior belief 0.5 that expected returns on the equal-weighted index are never negative comes away from the full-period B/M evidence with posterior probability 0.08 for the hypothesis (0.14 with the impact of the 1933 outlier tempered). Although this raises doubts about market efficiency, the post-1940 evidence is consistent with expected returns always being positive.

We predict that access to cross-border financing by the industrial sector reduces firms' reliance on domestic banks, thereby leading to lower rents for banks and greater competition in the domestic banking sector. We also predict that banks take on more risk to offset these lost rents and remain competitive. Using mandatory adoption of International Financial Reporting Standards (IFRS) to identify variation in cross-border financing, we find evidence consistent with our hypotheses. Additional tests verify that the effects emanate from the demand side (i.e., firms not relying on banks) rather than the supply side (i.e., banks not willing to lend to firms). Overall, we document how competition from overseas financial markets influences the domestic banking sector.

A model of earnings, cash flows and accruals is developed assuming a random walk sales process, variable and fixed costs, and that the only accruals are accounts receivable and payable, and inventory. The model implies earnings better predict future operating cash flows than current operating cash flows and the difference varies with the operating cash cycle. Also, the model is used to predict serial and cross-correlations of each firm's series. The implications and predictions are tested on a 1337 firm sample over 1963–1992. Both earnings and cash flow forecast implications and correlation predictions are generally consistent with the data.

We provide an economics-based review of the pros and cons of ESG disclosures, emphasizing environmental disclosures from an investor-centric perspective. Our survey intends to guide corporate management and regulators in navigating the ESG disclosure terrain. Rather than summarizing the vast and growing ESG literature, we assess the economic arguments for ESG disclosure regulation and the form of this disclosure. We discuss investors’ demand for ESG information and its supply by publicly traded firms. We analyze the case for and against mandatory ESG disclosure. Finally, we weigh the efficiency of disclosure requirement characteristics, assuming mandatory ESG disclosure is warranted. We intend to be positive rather than prescriptive, providing a line of reasoning readers can employ to reach their own conclusions about what we ought to do.

In this study, we examine whether managers delay disclosure of bad news relative to good news. If managers accumulate and withhold bad news up to a certain threshold, but leak and immediately reveal good news to investors, then we expect the magnitude of the negative stock price reaction to bad news disclosures to be greater than the magnitude of the positive stock price reaction to good news disclosures. We present evidence consistent with this prediction. Our analysis suggests that management, on average , delays the release of bad news to investors.