We show that the accrual anomaly documented by Sloan (1996) [Do stock prices fully reflect information in accruals and cash flows about future earnings? The Accounting Review 71: 289–315] is concentrated in firms with high idiosyncratic stock return volatility making it risky for risk-averse arbitrageurs to take positions in stocks with extreme accruals. Moreover, the accrual anomaly is found in low-price and low-volume stocks, suggesting that transaction costs impose further barriers to exploiting accrual mispricing.

We estimate the relation between stock option (ESO) grants to the top five executives and future earnings to examine whether incentive alignment or rent extraction by top managers explains option granting behavior. The future operating income associated with a dollar of Black-Scholes value of an ESO grant is $3.71. To understand the source of these positive payoffs, we parse out ESO grant values into components predicted by economic determinants of option grants, governance quality, and a residual grant value. The payoffs to ESOs appear to be driven predominantly by the economic determinants of option grants and not poor governance quality.

How do firms repair their reputations after a serious accounting restatement? To answer this question, we review firms' press releases and identify 1,765 reputation-building actions taken by: (1) 94 restating firms in the periods before and after their restatement; and (2) a set of matched control firms during contemporaneous periods. We posit that firms have incentives to target multiple stakeholders in a reputation repair strategy—including capital providers, customers, employees, and geographic communities—and that actions targeting each group generate positive market returns as reputation capital is repaired. Consistent with our predictions, the frequency of, and stock returns to, reputation-building actions are greater for restating firms in the period after their restatement than for the control groups. In addition, firm characteristics predict the types of stakeholders targeted by firms. Finally, actions targeted at both capital providers and other stakeholders are associated with improvements in the restating firm's financial reporting credibility. Data Availability: The data used in this study are available from the sources indicated.

We find that firms grant more rank and file stock options when involved in financial reporting violations, consistent with managements’ incentives to discourage employee whistle-blowing. Violating firms grant more rank and file options during periods of misreporting relative to control firms and to their own option grants in non-violation years. Moreover, misreporting firms that grant more rank and file options during violation years are more likely to avoid whistle-blowing allegations. Although the Dodd-Frank Act (2010) offers financial rewards to encourage whistle-blowing, our findings suggest that firms discourage whistle-blowing by giving employees incentives to remain quiet about financial irregularities.

Although agency theory suggests that firms should index executive compensation to remove market‐wide effects (i.e., RPE), there is little evidence to support this theory. Oyer (2004, Journal of Finance 59, 1619–1649) posits that an absence of RPE is optimal if the CEO's reservation wages from outside employment opportunities vary with the economy's fortunes. We directly test and find support for Oyer's (2004) theory. We argue that the CEO's outside opportunities depend on his talent, as proxied by the CEO's financial press visibility and his firm's industry‐adjusted ROA. Our results are robust to alternate explanations such as managerial skimming, oligopoly, and asymmetric benchmarking.

In December 2004, the Financial Accounting Standards Board (FASB) mandated the use of a fair value–based measurement attribute to value employee stock options (ESOs) via Financial Accounting Standard (FAS) 123‐R. In anticipation of FAS 123‐R, between March 2004 and November 2005, several firms accelerate the vesting of ESOs to avoid recognizing existing unvested ESO grants at fair value in future financial statements. We find that the likelihood of accelerated vesting is higher if (1) acceleration has a greater effect on future ESO compensation expense, especially related to underwater options, and (2) firms suffer greater agency problems, proxied by fewer blockholders, lower pension fund ownership, and top five officers holding a greater share of ESOs. We also find a negative stock price reaction around the announcement of the acceleration decision. Furthermore, stock returns are significantly negative before the new vesting dates and positive afterward, suggesting that vesting dates could have been backdated.

We show that network advantages constitute an important intangible asset that goes unrecognized in the financial statements. For a sample of e–commerce firms, we find that network advantages created by Web site traffic have substantial explanatory power for stock prices over and above traditional summary accounting measures such as earnings and book value of equity. Also, network advantages are positively associated with one–year–ahead and two–year–ahead earnings forecasts provided by equity analysts. When we allow network advantages to be endogenously determined by managerial actions, we find that at least part of the value relevance of network effects stems from the presence of affiliate referral programs and higher media visibility.

In this study we investigate the valuation implications of managerial actions undertaken by 57 Internet firms engaged in Business‐to‐Business (B2B) e‐commerce. We classify 3,007 managerial actions undertaken by our sample firms between the firm’s IPO date and September 30, 2000 into nine action categories: (1) acquisition of major customers, (2) introduction of new products and services, (3) promotional and marketing actions, (4) actions taken to address the concerns of stakeholders such as employees and the community at large, (5) announcements of technology, marketing, and distribution alliances, (6) completion of acquisitions, (7) expansion into international markets, (8) management team building actions, and (9) organizational changes. In the short window tests, we find a significant increase in stock price volatility over a three‐day event window surrounding the announcement of almost all actions suggesting that announcement of managerial actions provides value‐relevant information to the stock market. In the long window tests, we use factor analysis to group the counts of managerial actions taken by each firm over its post‐IPO life into two broad managerial initiatives—market penetration and organization building. These two initiatives explain a substantial portion of the cross‐sectional variation in the firms’ post‐IPO life stock market returns beyond that explained by both reported earnings and analysts’ forecasts of future earnings and revenues. Thus, investors appear to supplement relatively meager accounting information with data about the cross‐sectional intensity of managerial actions in setting stock prices of B2B Internet firms.