This paper argues that academics, politicians, and the media have six commonly held but misguided beliefs about corporate governance. While Armstrong et al. (2010) discuss some of these misconceptions, a wider recognition that these beliefs are actually “myths” is important. They include: (1) a common definition of “corporate governance” exists; (2) a useful distinction is “internal” versus “external” governance mechanisms; (3) outside directors perform two separable roles: to advise and monitor managers; (4) research has identified “good” and “bad” governance practices; (5) a “good” governance index can be constructed; and (6) corporate governance “best practices” can be deduced from peer data.

ABSTRACT This paper studies managers' preferences among information acquisition and disclosure policies when their firms are required to engage in “real‐time” or “continuous” financial reporting. The paper predicts that for many, but not all, processes describing the distribution of their firms' cash flows, when subject to such reporting requirements, managers will engage in disclosure “bunching,” that is, they will bunch the discretionary component of the information they acquire and disclose into a single point in time rather than spread the acquisition and disclosure of that information over time. We show that managers' preferred bunching period depends on managers' strategy for trading in their firms' shares, managers' risk aversion, the risk premium the capital market attaches to firms' shares, and the size of managers' initial ownership stakes in their firms. We also study and characterize how the equilibrium prices of firms' shares vary over time and also how managers' optimal trading strategies vary with their most preferred “bunching” strategies. Several extensions confirm the robustness of the optimality of disclosure “bunching.”

We show that inflation risk is priced in international asset returns. We analyze inflation risk in a framework that encompasses the International Capital Asset Pricing Model (ICAPM) of Adler and Dumas (1983). In contrast to the extant empirical literature on the ICAPM, we relax the assumption that inflation rates are constant. We estimate and test a conditional version of the model for the G5 countries (France, Germany, Japan, the UK, and the US) over the period 1975–1998 and find evidence of statistically and economically significant prices of inflation risk (in addition to priced nominal exchange rate risk). Our results imply a rejection of the restrictions imposed by the ICAPM. In an extension of our analysis to 2003, we show that even after the termination of nominal exchange rate fluctuations in the euro area in 1999, differences in inflation rates across countries entail non-trivial real exchange rate risk premia.

Les auteurs examinent le lien entre les audits des Cinq Grands et l’incidence des fraudes comptables présumées de sociétés ouvertes des États‐Unis entre 1981 et 2001. Selon bon nombre de commentateurs, les défaillances retentissantes de l’information financière qui ont menéà des réformes radicales de la gouvernance d’entreprise soulèvent de sérieux doutes quant à savoir si les grands cabinets d’expertise comptable continuent d’offrir des audits d’une qualité relativement élevée, en particulier depuis quelques années. Toutefois, dans des échantillons non appariés et appariés, les auteurs relèvent des données solides et robustes permettant de conclure que la publication d’information financière frauduleuse est moins probable en la présence d’un auditeur des Cinq Grands. Fait important, les tests des séries chronologiques laissent supposer qu’il existe un lien caractérisé entre les Cinq Grands et l’incidence plus faible de la fraude comptable, y compris dans les cinq dernières années de la période d’échantillonnage, au cours desquelles le nombre de fraudes a monté en flèche. De plus, les auteurs recueillent des preuves que ce lien est de nature causale et n’est pas un simple facteur endogène dans le choix de l’auditeur.

The Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB), in their joint Financial Statement Presentation project, are reconsidering the basic format of financial statements. The Boards’ preliminary discussions related to this joint project indicate that they intend to modify the required financial statements to increase the proximity of performance‐related information for each reported period. We provide evidence related to this potential change by investigating the effects of financial statement information proximity on investors’ ability to learn the forecast‐relevant time series properties of reported cash flows and accruals. We also examine the role feedback plays in this relationship. Our experimental results suggest that nonprofessional investors are able to more quickly learn the relation between current period cash flows and accruals and future cash flow realizations when financial statement information is presented in a single statement rather than separated into two statements. In addition, we find that nonprofessional investors exhibit lower levels of absolute forecast errors and less forecast dispersion when financial statement information is unified into a single statement. Finally, we provide evidence that nonprofessional investors who receive extensive outcome feedback on a single page initially learn more quickly and later, after learning has leveled off, accurately forecast more consistently than do investors who receive extensive or limited feedback spread across two pages. Overall, our results provide evidence on the effectiveness of alternate financial statement presentation formats and the potential usefulness of receiving more extensive feedback.

Using a large sample of cross-border mergers, we measure the effect of a change in location on systematic risk. When a target firm's location moves, a large part of its systematic risk switches from being related to its home equity market to that of the acquirer. On average, the change in betas is equivalent to an excess shift of about 0.5 in the target's beta from its home market to that of the acquirer. We test whether the change in systematic risk can be explained by fundamental factors related to changes in the operations of the firm or merger synergy and find that it cannot. The Author 2009. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For permissions, please e-mail: [email protected], Oxford University Press.

We examine how long-run consumption risk arises endogenously in a standard pro-duction economy model where the representative agent has Epstein-Zin preferences. We show that even when technology growth is i.i.d., optimal consumption smoothing induces long run risk- highly persistent variation in expected consumption growth. As a consequence, the model can account for a high price of risk although both consump-tion growth volatility and the coe ¢ cient of relative risk aversion are low. The asset pricing implications of endogenous long-run risk depend crucially on the persistence of technology shocks and investorspreference for the timing of resolution of uncertainty.

[We develop a life-cycle consumption and portfolio choice model in which households have nonhomothetic utility over two types of goods, basic and luxury. We calibrate the model to match the cross-sectional and life-cycle variation in the basic expenditure share in the Consumer Expenditure Survey. The model explains the degree to which the portfolio share in risky assets rises in wealth in the cross-section of households in the Survey of Consumer Finances. For a given household, the portfolio share can fall in response to an increase in wealth, even though the model implies decreasing relative risk aversion.]

This article examines the effect of household debt on investment decisions. We alter a simple portfolio choice model to allow households to retire outstanding debt and realize a risk-free rate of return equal to the interest rate on that debt. Using the Survey of Consumer Finances, we find that households with mortgage debt are 10 % less likely to own stocks and 37 % less likely to own bonds compared to similar households with no mortgage debt. We calculate the costs of nonoptimal investment in the presence of various forms of household debt. We find that 26 % of households should forgo equity market participation on account of the high interest rates they pay on their debt. (JEL D03, D12, D14, G11, G12) This article examines the effect of debt on the household portfolio. Whereas standard portfolio choice models focus primarily on the asset side of the house-hold balance sheet, we examine the effects of liabilities on investment deci-sions. Throughout the life cycle, many households accumulate debt from a variety of sources including mortgages, student loans, and consumer debt. Re-tirement of this debt offers households a return equal to the interest rate on their loan, which is almost always greater than the return to investing in the

[This article examines the effect of household debt on investment decisions. We alter a simple portfolio choice model to allow households to retire outstanding debt and realize a risk-free rate of return equal to the interest rate on that debt. Using the Survey of Consumer Finances, we find that households with mortgage debt are 10% less likely to own stocks and 37% less likely to own bonds compared to similar households with no mortgage debt. We calculate the costs of nonoptimal investment in the presence of various forms of household debt. We find that 26% of households should forgo equity market participation on account of the high interest rates they pay on their debt.]