Recent work in accounting suggests that managerial optimism can lead managers to escalate income‐increasing earnings management. In this paper, I examine how a fundamental attribute of the earnings management setting—the amount of time between the earnings management decision and the future reversal—serves as one potential source of managerial optimism. I conduct two experiments to test whether the amount of time between the earnings management decision and the future reversal systematically induces optimism that increases participants’ propensity to engage in behavior that is analogous to accruals‐based earnings management and to real earnings management, holding constant incentives, agency frictions, and the information environment. My results indicate that, independent of their innate optimism, the time between the earnings management decision and the future reversal likely encourages managers to overestimate their ability to compensate for current‐period earnings management through strong future performance. This optimism, in turn, likely increases managers’ propensity to engage in both forms of earnings management.

Many view large payments following mergers or acquisitions as excessive and evidence of rent extraction. Using additional disclosures required by the SEC since 2006, I hand‐collect details of preexisting change in control ( CIC ) provisions in employment agreements and CIC benefits granted to target CEO s during mergers. I find that CIC benefits are renegotiated in approximately 50 percent of my sample. I then investigate whether renegotiation of CIC benefits tends to be opportunistic, or, instead, evidence of efficient contracting. The overall evidence is more consistent with efficient contracting. This contrasts prior research that focuses solely on certain components of CIC benefits, such as employment in merged firms or merger bonuses. I find that changes in CIC benefits are positively associated with the CEO 's horizon, as would be predicted by efficient contracting, but only limited evidence that changes in CIC benefits are positively associated with proxies for CEO power, as would be predicted by rent extraction. Acquiring firm shareholders interpret increases in target CEO s' CIC benefits as evidence of rent extraction, although I find that the merged firm's post‐merger performance is positively associated with changes in CIC benefits. This result is more consistent with acquiring firms providing target CEO s increased CIC benefits to complete mergers and realize synergies than with value‐reducing rent extraction.

This paper examines the impact of dividend distribution decrease announcements on the security prices of master limited partnerships. (MLPs). These firms, whose earnings are not subject to U.S. Federal Income Tax, are marketed stressing high dividend yields. Since most MLPs are natural resource firms with only one line of business, cuts in dividend policy by one firm caused by industry‐wide factors might impact the market's pricing of similar firms. Therefore, tests of announcement effects are performed not only on the firm itself but also on a portfolio of related firms. Although the announcements were found to be associated with significant unit price reactions for the MLP making the announcement, the price reaction for similar firms was small, indicating only weak support for intraindustry information transfers. Résumé. L'auteur examine l'incidence des avis de réduction des déclarations de dividendes sur le prix des titres des Master Limited Partnerships (MLP). Pour mettre en marché les titres de ces entreprises, dont les bénéfices ne sont pas assujeuis à l'impôt fédéral américain sur le revenu, on fait valoir leur taux de rendement élevé. Comme la plupart des MLP œuvrent dans un secteur d'activité unique, celui des ressources naturelles, les réductions de dividendes opérées par une entreprise en raison de facteurs qui touchent l'ensemble du secteur risquent d'avoir une incidence sur le cours des titres d'entreprises similaires. C'est pourquoi l'auteur vérifie l'incidence de ces réductions non seulement sur les titres de l'entreprise qui les annonce, mais aussi sur un portefeuille de titres d'entreprises apparentées. Bien que l'annonce d'une réduction provoque d'importants changements dans le cours unitaire des titres de la MLP qui en est l'auteur, les changements enregistrés dans le cours des titres des entreprises similaires sont minces, ce qui indique un faible dispositif de transfert d'information à l'intérieur du secteur.

This study investigates changes in the call option market microstructure, as reflected in bid/ask spread changes, surrounding information release dates. The size of bid/ask spreads is not significantly changed by accounting earnings releases. The results indicate a significant increase in the bid/ask spread on the date of large price changes and a significantly increased number of insignificant changes in both actual and proportional bid/ask spreads surrounding earnings announcements and dates of large price changes. Significant increases in trading volume precede both types of information releases. Résumé. Cette étude examine les changements dans la microstructure du marché des options d'achat, tels que reflétés par les changements dans l'écart des cours acheteur et vendeur, autour des dates de publication d'information. La taille des écarts des cours acheteur et vendeur n'est pas sensiblement modifiée par la publication des bénéfices comptables. Les résultats montrent un accroissement significatif de l'écart entre le cours acheteur et vendeur à la date de changements majeurs des prix, et un accroissement significatif du nombre de changements négligeables à la fois des écarts de cours acheteur et vendeur absolus et relatifs, autour des dates de publication de résultats et de fluctuations de prix importantes. Des accroissements significatifs du niveau d'activité précèdent les deux types d'informations divulguées.

Jonathan H. Adler of William and Mary Law School reviews “The Chevron Doctrine: Its Rise and Fall, and the Future of the Administrative State” by Thomas W. Merrill. The Econlit abstract of this book begins: “Explores the standard that courts apply in determining whether an administrative agency has correctly interpreted the statute under which it operates, delving into where this standard – the Chevron doctrine – came from, how it spread, and arguments over its adequacy.”

JHEN PUBLISHERS receive copies of reviews of their books, they quickly scan them for possible quotes for use in promotional materials. They are often frustrated to discover that a reviewer really liked the book, yet never managed to say so in a clear, unequivocal way. The people at Harvard University Press will experience no such frustration with this essay on James Coleman's application of rational choice theory to the classical issues of sociology. Professor Coleman's Foundations of Social Theory is a masterwork. Epic in scope, it is clear, engaging, and forcefully argued. Traditional sociologists will be unable to ignore its bold new agenda for their discipline. And the book will have a lasting impact on economics, political science, psychology, and other disciplines concerned with human behavior. Having issued this ringing endorsement of the work as a whole, I hasten to add that there are many points on which I find myself in substantial disagreement with Coleman. On some occasions, he pushes the rational choice theory too far; on others, not nearly far enough. But one of his great virtues is his remarkable willingness to articulate clear theories and commit himself to their predictions. In the process, he leaves himself open to being proved wrong, and indeed he sometimes is wrong. Yet how much more satisfying is his approach than the familiar alternative of constructing vague ad hoc explanations to fit known fact patterns. Foundations of Social Theory is organized into five parts. Part I, Elementary Actions and Relations, introduces the basic building blocks of the theory-actors, resources, interests, individual rights, and relatonships involving authority and trust. Part II's focus is the micro-tomacro transition; it applies the theory of rational individual behavior to the units developed in Part I to deduce how systems of actors will behave. Here, Coleman is concerned with social exchange, crowd behavior, and the emergence of social norms. In Part III, Coleman constructs a theory in which the principal actor is not the individual but the corporation. His aim is to explain how and why individuals empower formal organizations to act on their behalf, and the means whereby such authority can be revoked. Part IV, entitled Modern Society, employs the theories developed earlier to shed light on developments in contemporary social and economic life. Coleman devotes Part * James S. Coleman. Foundations of Social Theory. Cambridge, Mass. and London: Harvard University Press, Belknap Press, 1990. Pp. xvi, 993. ISBN 0-674-312250-2.

Private Truths, Public Lies is a splendid book. It tackles a long list of interesting and important questions that have been discussed at length, and largely unsuccessfully, by scholars from each of the social sciences. Kuran blends the insights of economics, psychology, sociology, and political science into a behavioral model that moves the discussion forward on many fronts. His may not be the model that many traditional economists might have chosen, but it is one that most can live with.