Knowledge that Transforms

We define quality as characteristics that investors should be willing to pay a higher price for. Theoretically, we provide a tractable valuation model that shows how stock prices should increase in their quality characteristics: profitability, growth, and safety. Empirically, we find that high-quality stocks do have higher prices on average but not by a large margin. Perhaps because of this puzzlingly modest impact of quality on price, high-quality stocks have high risk-adjusted returns. Indeed, a quality-minus-junk (QMJ) factor that goes long high-quality stocks and shorts low-quality stocks earns significant risk-adjusted returns in the United States and across 24 countries. The price of quality varies over time, reaching a low during the internet bubble, and a low price of quality predicts a high future return of QMJ. Analysts’ price targets and earnings forecasts imply systematic quality-related errors in return and earnings expectations.

We examine whether the use of eXtensible Business Reporting Language (XBRL) for financial reporting (i.e., interactive data submissions) reduces earnings management during the period of XBRL implementation by the SEC. Using a sample of mandated XBRL filers, we compare the magnitude of absolute discretionary accruals in the XBRL adoption quarters with that in the non‐adopting quarters. We also take advantage of staggered (three‐stage phase‐in) XBRL implementations to perform difference‐in‐differences analyses. Our results show that absolute discretionary accruals decrease significantly from the pre‐ to the post‐XBRL period, suggesting that XBRL adoption constrains earnings management via discretionary accrual choices. Our analyses further reveal that the use of standardized official XBRL elements significantly reduces the levels of discretionary accruals, while the use of customized extension elements does not, suggesting that the former discourages accrual‐based earnings management, while the latter does not. Our results are robust to a variety of sensitivity checks.

We study whether, and more importantly, through what mechanisms, quasi-indexers affect portfolio firms’ tax planning by employing the discontinuity in quasi-indexer ownership around the Russell 1000/2000 index cutoff. Using a regression discontinuity design, we find that higher quasi-indexer ownership leads to greater tax saving. With respect to the mechanisms, we find that the greater tax saving is a result of a focus on improved overall firm performance, not a specific focus on improved tax planning. We further find that the documented tax saving effect is partially due to quasi-indexers’ influences on executive equity incentives, corporate governance, and information environment.

We review empirical papers published in JAR over the past 10 years examining management accounting and control systems in organizational contexts that are complex, ambiguous and where performance is difficult to measure. These papers draw on a variety of newer economic models of organization culture and relational contracts and related theories from sociology and psychology.

editorial| August 12 2020 Annual Editor Report Mary E. Barth Mary E. Barth Stanford University Search for other works by this author on: This Site PubMed Google Scholar The Accounting Review (2019) 94 (6): 1a–21. https://doi.org/10.2308/accr-10749 Views Icon Views Article contents Figures & tables Video Audio Supplementary Data Share Icon Share Facebook Twitter LinkedIn Email Tools Icon Tools Get Permissions Cite Icon Cite Search Site Citation Mary E. Barth; Annual Editor Report. The Accounting Review 1 November 2019; 94 (6): 1a–21. doi: https://doi.org/10.2308/accr-10749 Download citation file: Ris (Zotero) Reference Manager EasyBib Bookends Mendeley Papers EndNote RefWorks BibTex toolbar search Search nav search search input Search input auto suggest Search This content is only available as a PDF. Article PDF first page preview Close Modal You do not currently have access to this content.