ABSTRACT This paper investigates the press's role as a monitor or “watchdog” for accounting fraud. I find that the press fulfills this role by rebroadcasting information from other information intermediaries (analysts, auditors, and lawsuits) and by undertaking original investigation and analysis. Articles based on original analysis provide new information to the markets while those that rebroadcast allegations from other intermediaries do not. Consistent with a dual role for the press, I find that business‐oriented press is more likely to undertake original analysis while nonbusiness periodicals focus primarily on rebroadcasting. I also investigate the determinates of press coverage, finding systematic biases in the types of firms and frauds for which articles are published. In general, the press covers firms and frauds that will be of interest to a broad set of readers and situations that are lower cost to identify and investigate.

Theory suggests that managers issue earnings forecasts to reduce information asymmetry. An earnings forecast is more effective in reducing information asymmetry if it contains earnings news that is relatively more informative about the firm's value. We hypothesize that a manager is more likely to issue an earnings forecast if investors perceive that earnings are more informative. We measure earnings informativeness by estimating the firm's earnings response coefficient (ERC) in quarters prior to the forecast issuance decision. Consistent with our hypothesis, we find that the firm's historic ERC is positively associated with management's issuance of earnings forecasts.

Financial stability has proved elusive. Despite the success of central banks in controlling inflation, economies continue to experience periods of exchange rate overvaluation, stock market volatility and housing price bubbles that affect individuals very deeply. This note speculates that such financial volatility may be the product of three factors, (a) successful inflation targeting, (b) the existence of nonlinearities and differential economic dynamics, and (c) the recent evolution of key structural parameters in the economy. If so, then central banks might better focus on making financial systems more resilient than on trying to develop more sophisticated policies aimed at reducing financial volatility.

We examine cross-sectional determinants of the informativeness of analyst research, i.e., their effect on security prices, controlling for endogeneity among the factors affecting informativeness. Analyst reports are more informative when the potential brokerage profits are higher (e.g., high trading volume, high volatility, and high institutional ownership) and lower when information processing costs (e.g., more business segments) are high. We also find that the informativeness of analyst research and informativeness of financial statements are complements.

Abstract In this paper, we analyze how financial analysts generate information, make decisions about firm coverage, and try to maintain their forecasting accuracy after the passage of Regulation Fair Disclosure (“Reg FD”). Using the model developed by Barron, Kim, Lim, and Stevens 1998, we find that analysts are investing more effort in idiosyncratic information discovery. In order to do this, individual analysts appear to be reducing coverage for well‐followed firms while increasing coverage of firms that were less followed prior to Reg FD. Analysts who had preferential links with firms that they covered, such as analysts from large brokerage houses, tend to have greater forecast accuracy in the pre‐FD period. However, these analysts are unable to sustain their forecasting superiority in the post‐FD period, which suggests that there has been a leveling of the information playing field among analysts. Overall, our results reflect a trend toward greater reliance on idiosyncratic information discovery on part of the financial analysts.

Abstract We examine the role of cash flow from operations (CFO) in chief executive officer (CEO) cash compensation. We predict that CFO is contract‐relevant in the presence of earnings, and more so when (1) the quality of earnings relative to the quality of CFO as a measure of performance is low and (2) the need for CFO as a financing source is high. Our analysis is motivated principally by normative arguments and anecdotes from financial disclosures linking CFO to managerial effort and contracts, notwithstanding the traditional role of earnings in performance measurement. We find that the weight of CFO in the compensation model is positive and significant in the presence of earnings and stock returns. We also find that the relative quality of CFO compared with that of earnings has a positive (negative) impact on the weight of CFO (earnings). We further find that the relative weight of CFO is enhanced substantially when enterprise activities crucially depend on internally generated cash flow. These findings are unaltered when we include CEO age, firm size, and risk in the model and allow the coefficients to vary across industries.

Within diversified firms, the negative impact of leverage on investment is significantly greater for high q than for low q segments and significantly greater for non-core than for core segments. This differs substantially from focused firms and is consistent with the view that diversified firms allocate a disproportionate share of their debt service burden to their higher q and non-core segments. We also find that, among low-growth firms, the positive relation between leverage and firm value is significantly weaker in diversified firms than in focused firms. We conclude that the disciplinary benefits of debt are partially offset by the additional managerial discretion in allocating debt service that is provided by the diversified organizational structure.

We show how information technology affects transfer pricing. With coarse information technology, negotiated transfer pricing has an informational advantage: managers agree to prices that approximate the firm's cost of internal trade more precisely than cost-based transfer prices. With sufficiently rapid offers, this advantage outweighs opportunity costs of managers’ bargaining time, and negotiated transfer pricing generates higher profits than the cost-based method. However, as information technology improves, the informational advantage diminishes; the opportunity costs of managers’ bargaining eventually dominate, and cost-based methods generate higher profits. Our results explain why firms generally prefer cost-based methods, and when negotiated methods are preferable.