Auditor-client negotiation about difficult client accounting issues involves both the auditor and the client. On the client side, the Chief Financial Officer (CFO) plays a central role in the financial reporting process, yet is rarely the focus of academic study. This paper reports how a sample of Canadian CFOs viewed the negotiation process and context, using an experiential questionnaire to build on the negotiation model developed and demonstrated for the auditor side of the negotiation by Gibbins, Salterio, and Webb 2001, and corroborated by a comparison of common questionnaire items across auditor and CFO samples by Gibbins, McCracken, and Salterio 2005. The CFOs saw negotiation with the auditors as a consequence of change in accounting and disclosure standards or personnel influential to their financial reporting, or business changes, such as, new business deals or acquisitions. Negotiation was thrust upon the CFO, and the CFO then had to manage it. The CFOs informed other management (such as the CEO) and was aware of their interests, but did not generally seek their help. Informing the Board or the audit committee of the issue was much less frequent. The issue being negotiated was seen as complex, requiring research and analysis, and dependent on knowledge and expertise, with the result more likely reflecting form over substance (a result some CFOs suggested was more agreeable to the auditor than to the CFO).

[We analyze the role of knowhow acquisition in the formation and duration of joint ventures. Two parties become partners in a joint venture to benefit from each other's knowhow. Joint operations provide each party with the opportunity to acquire part of its partner's knowhow. A party's increased knowhow provides the impetus for the dissolution of the joint venture. We characterize the conditions under which dissolution takes place, identify the party that buys out its partner, determine the time to dissolution, establish its comparative statics, and examine the implications of knowledge acquisition for the desirability of joint venture formation.]

Using a sample of all-star analysts who switch investment banks, we examine (1) whether analyst behavior is influenced by banking relationships and (2) whether analyst behavior affects investment banking deal flow. Although the stock coverage decision depends on the relationship with the client firms, we find no evidence that analysts change their optimism or recommendation levels when joining a new firm. Investment banking deal flow is related to analyst reputation only for equity transactions. For debt and M&A transactions, analyst reputation does not matter. There is no evidence that issuing optimistic earnings forecasts or recommendations affects investment banking deal flow.

[We conduct an analysis of the risk and return characteristics of a number of widely used fixed-income arbitrage strategies. We find that the strategies requiring more "intellectual capital" to implement tend to produce significant alphas after controlling for bond and equity market risk factors. These positive alphas remain significant even after taking into account typical hedge fund fees. In contrast with other hedge fund strategies, many of the fixed-income arbitrage strategies produce positively skewed returns. These results suggest that there may be more economic substance to fixedincome arbitrage than simply "picking up nickels in front of a steamroller."]

This paper examines linkages between audit and nonaudit fees and accrual quality. We measure accrual quality by the Francis, Lafond, Olsson, and Schipper 2005 modification of the Dechow and Dichev 2002 measure. We posit that in settings where audit quality is compromised by a loss of auditor independence, managers use accruals more opportunistically and thereby drive down the accrual quality. Conversely, higher audit effort and quality translate to better accrual quality. Our dependent variables are the relative magnitude of nonaudit fees to audit fees and the absolute magnitudes of audit, nonaudit, and total fees. Results show that accrual quality has a significant negative association with the magnitude of nonaudit fees and a significant positive association with audit fees. This latter result is consistent with the proposition that higher audit fees reflect higher audit effort and better judgements about the propriety of accruals, but is not consistent with the proposition that audit fees are associated with economic bonding.

[The Black-Scholes-Merton option valuation method involves deriving and solving a partial differential equation (PDE). But this method can generate multiple values for an option. We provide new solutions for the Cox-Ingersoll-Ross (CIR) term structure model, the constant elasticity of variance (CEV) model, and the Heston stochastic volatility model. Multiple solutions reflect asset pricing bubbles, dominated investments, and (possibly infeasible) arbitrages. We provide conditions to rule out bubbles on underlying prices. If they are not satisfied, put-call parity might not hold, American calls have no optimal exercise policy, and lookback calls have infinite value. We clarify a longstanding conjecture of Cox, Ingersoll, and Ross.]

[We examine the optimal mixture and priority structure of bank and market debt using a trade-off model in which banks have the unique ability to renegotiate outside formal bankruptcy. Flexible bank debt offers a superior trade-off between tax shields and bankruptcy costs. Ease of renegotiation limits bank debt capacity, however. Optimal debt structure hinges upon which party has bargaining power in private workouts. Weak firms have high bank debt capacity and utilize bank debt exclusively. Strong firms lever up to their (lower) bank debt capacity, augment with market debt, and place the bank senior. Therefore, the trade-off theory offers an explanation for: (i) why young/small firms use bank debt exclusively; (ii) why large/mature firms employ mixed debt financing; and (iii) why bank debt is senior. The trade-off theory also generates predictions consistent with international evidence. In countries in which the bankruptcy regime entails soft (tough) enforcement of contractual priority, bank debt capacity is low (high), implying greater (less) reliance on market debt.]

To study the effects of new information technologies (IT) on productivity, we have assembled a unique data set on plants in one narrowly defined industry—valve manufacturing—and analyze several plant-level mechanisms through which IT could promote productivity growth. The empirical analysis reveals three main results. First, plants that adopt new IT-enhanced equipment also shift their business strategies by producing more customized valve products. Second, new IT investments improve the efficiency of all stages of the production process by reducing setup times, run times, and inspection times. The reductions in setup times are theoretically important because they make it less costly to switch production from one product to another and support the change in business strategy to more customized production. Third, adoption of new IT-enhanced capital equipment coincides with increases in the skill requirements of machine operators, notably technical and problem-solving skills, and with the adoption of new human resource practices to support these skills.

We document that Regulation Fair Disclosure has reduced differences in information quality between investors prior to quarterly earnings announcements consistent with the intent of the regulation. This reduction is driven by small firms and high technology firms, rather than the large firms targeted by the SEC, which suggests that selective disclosure among large firms may have been much more limited than what was presumed by proponents of FD. In addition, we document that FD has decreased the average information quality of investors in small and high technology firms in the period prior to an earnings announcement while having no lasting effect on other firms. Taken together these two results suggest that, for small and high technology firms, FD succeeded in eliminating selective disclosure but also lowered the average quality of information available about these firms.