This paper reports empirical tests of an hypothesized positive relation between audit quality and firm-specific risk that is predicted by Datar, Feltham, and Hughes' (1991) theoretical analysis of auditor choice when firms go public. Three types of proxies for ex ante firm-specific risk are used to test this relation: regression coefficients that theory relates to the firm-specific risk, ex ante proxies available from prospecti, and ex post variances in returns. Results from the first are moderately consistent with our hypothesis, while those from the latter two are either mixed or contrary.

In this paper we investigate whether the level of earnings divided by price at the beginning of the return period is relevant for evaluating earnings/returns associations.' The primary model motivating this research relies on the idea that book value (owners' equity) and market value are both stock variables indicating the wealth of the firm's equity holders. The related flow variables (after adjusting for dividends) are, respectively, earnings divided by price at the beginning of the return period (A/P-1) and market returns. It then follows that earnings divided by beginning of period price should be associated with returns. Although models based on a relation between market value and book value are used occasionally in the accounting research literature (see, for example, Landsman [1986], Harris and Ohlson [1987], and Barth

[The American Institute of Certified Public Accountants (AICPA) and its affiliated state societies promote restrictive accountancy laws that limit both the right to express opinions on financial statements and the use of certain occupational titles to licensed public accountants. Although occupational licensing, like other forms of government regulation, is justified as being in the "public interest," critics (e.g., Stigler 1971; Peltzman 1976) suggest that licensing arises because of the professional groups' interest in using the coercive power of government for their own economic advantage. Until 1979, CPAs were content to limit state regulation to the audit function, permitting unlicensed accountants to perform other accounting tasks. With the growing importance of review and compilation services, however, CPAs have sought to restrict the performance of these services too. In addition, the AICPA and state CPA societies have used their influence with state legislatures and licensing boards to impose limitations on the use of professional titles such as "public accountant," "accountant," and "auditor." Whereas some states have adopted relatively permissive licensing laws, others restrict all analytical work and professional titles to licensees. This study explains why some states have adopted more restrictive licensing regimes than others. Hypotheses are developed to test the power of interest groups, political systems, and socioeconomic variables in explaining such differences. The evidence, based on both univariate and multivariate techniques, supports the following general conclusions. Restrictive licensing regimes are more likely in states where the interest-group strength of CPAs is high, as measured by their numbers relative to public accountants who are not CPAs. Restrictiveness is inversely related to statewide competition between Republicans and Democrats and is slightly related to legislative turnover.]

Abstract Explains why some states in the United States have adopted relatively permissive licensing laws for public accountants. Use of hypotheses to test the power of interest groups, political systems and socioeconomic variables in explaining differences in licensing requirements; Role of the American Institute of Certified Public Accountants.

Abstract Reviews the methodology of models involving qualitative and limited-dependent variables and their application in accounting research. Logit and probit models and discriminant analysis; Tobit model and the truncated regression model; Models involving sample selection bias; Models involving self-selectivity; Prediction of the effects of mandated accounting changes.

Abstract. This study extends the growing literature on the deteminants of the variation in the relationship between unexpected earnings and abnormal security returns (the earnings response coefficient). We hypothesize that the firm's default risk as measured by financial leverage would affect the earnings response coefficient. We test this hypothesis by partitioning firms according to (1) the existence of debt in the capital structure (all‐equity versus levered firms) and (2) the level of leverage (low‐leverage versus high‐leverage firms). The results are generally consistent with our hypothesis. Specifically, we find that the earnings response coefficients are larger for all‐equity and low‐leverage firms vis‐à‐vis matched‐levered and high‐leverage firms, even after controlling for the effects of equity beta, persistence, risk premium, and measurement error in unexpected earnings. Our findings are also robust with respect to the choice of earnings measure, either before or after interest charges. Résumé. L'étude s'inscrit dans le prolongement des travaux de plus en plus nombreux portant sur les déterminants de la fluctuation de la relation entre les bénéfices imprévus et les rendements anormaux des titres (le coefficient de réponse des bénéfices). Les auteurs posent l'hypothèse que le risque de non‐paiement de l'entreprise, mesuré en termes de levier financier, influe sur le coefficient de réponse des bénéfices. Les auteurs testent cette hypothèse en classant les entreprises selon 1) l'existence ou non de capitaux empruntés dans la structure du capital (entreprises dont les capitaux sont exclusivement des capitaux propres par rapport aux entreprises dont les capitaux sont en partie empruntés) et 2) l'importance du levier financier (entreprises dont le levier financier est faible par rapport aux entreprises dont l'importance du levier financier est élevée). Dans l'ensemble. les résultats confirment l'hypothèse. De façon plus précise, les coefficients de réponse des bénéfices sont plus élevés pour les entreprises dont les capitaux sont exclusivement des capitaux propres et les entreprises dont le levier financier est faible, par rapport aux entreprises, classées selon la taille et le secteur d'activité, dont les capitaux sont davantage constitués de capitaux empruntés et dont le levier financier est élevé, même lorsque sont contrôlées les répercussions du bêta des capitaux propres, de la persistance, de la prime de risque et de l'erreur de mesure des bénéfices imprévus. Les résultats de leur étude résistent également à l'analyse lorsqu'ils font intervenir le choix de la mesure des bénéfices, avant ou après avoir tenu compte des intérêts débiteurs.

This paper argues that firms use debt to protect the wealth of shareholders from the threat of unionization. Under U. S. labor law the firm cannot prohibit its workers from attempting to form a collective bargaining unit. Debt policy offers a method of reducing the impact of this monopoly right on shareholders. By issuing debt, the firm credibly reduces the funds that are available to a potential union. Empirical evidence that strongly supports this hypothesis is presented.

In many industries, the largest firms are most successful in entering and competing in individual markets or submarkets. While this success is often attributed to cost or quality differences, it may also reflect reputation advantages or marketing strategies that benefit firms selling a wider variety of products in the industry. I present an approach to estimating the advantages of a dominant firm in the airline industry that allows one to effectively control for cost and quality heterogeneity. Results using data from 1986 indicate that an airline with a dominant presence at an airport will have a significant advantage in attracting customers whose trips originate at that airport, regardless of the specific route on which the customer is traveling.

SEC, AAER, Auditing enforcement releases, Market reaction