Since 1970, the fraction of mixed-race black-white births has increased nearly ninefold. This paper describes basic facts about the behaviors and outcomes of black-white mixed-race individuals. Unsurprisingly, on a host of background and achievement characteristics, as well as adult outcomes, mixed-race individuals fall in between whites and blacks. When it comes to engaging in risky and antisocial adolescent behavior, however, mixed-race adolescents are stark outliers compared to both blacks and whites. We argue that these behavioral patterns are most consistent with a two-sector Roy model, in which mixed-race adolescents, not having a predetermined peer group, engage in more risky behaviors in order to be accepted.

We examine year-to-year adjustments of performance measure weights in managers’ incentive contracts. Using survey panel data on financial middle managers over four years, we document that higher target achievement on a given measure is associated with an increase in the measure’s relative weight for the subsequent year. We explore three potential explanations for this pattern: retention considerations, managerial influence, and gradual strategic shifts. Consistent with retention considerations, we find that shifts toward better performing measures are stronger for managers who outperform their peers and in firms facing greater labor market competition. Consistent with managerial influence, we find that shifts are also stronger for managers with greater influence on their incentives and in firms with lower incentive design transparency. We find, however, no support for the gradual strategy change explanation, as results do not show that shifts vary with managers’ involvement in strategic decision-making or subsequently observed strategy changes. Data Availability: The survey data used in this project are protected by a nondisclosure agreement.

We examine whether management forecast errors (MFEs), which are traditionally interpreted as backward-looking indicators of how well forecasts preempted earnings announcements, also operate as forward-looking measures that aid with predicting future earnings. This possibility arises if an MFE represents unrealized revenues or expenses a manager originally anticipated to occur in the forecast period but that ultimately occur in subsequent periods. Consistent with this possibility, we document that optimistic MFEs contain incremental information over current earnings for predicting future earnings realizations. This finding does not extend to pessimistic MFEs, consistent with such errors reflecting expectations management. The predictive information in optimistic MFEs is negatively related to managers' incentives to intentionally bias the forecast and is positively related to managerial ability. Analysts' post-earnings announcement forecasts for the subsequent period overestimate the future realization of MFEs, but such overestimation is less severe when managers issue timely post-earnings announcement forecast revisions for subsequent periods. Data Availability: Data used in this study are publicly available from sources identified in the text.

We explore the role of investor relations (IR) in debt markets. Using earnings announcements as a laboratory, we examine whether, when, and to what extent IR departments help credit investors assimilate information. We find that the presence of IR decreases (increases) the negative (positive) impact on CDS spreads stemming from bad (good) earnings news, suggesting that IR efforts improve information precision and reduce transparency risk. Cross-sectional analyses suggest that IR matters more when uncertainty is high and creditors are concerned about the credit risk implications of firm performance. We also find that IR firms receive higher credit ratings and fewer covenants when issuing bonds, and CDS markets react less negatively when IR firms' bond ratings are downgraded below investment grade. Because firms choose their IR activities, we show that our inferences are robust to multiple methods of addressing endogeneity. Overall, we find that IR departments are influential in debt markets.

We document multiple dimensions of usefulness of banks' interest income sensitivity disclosures. First, we find management-generated sensitivity measures are predictive of future realized changes in net interest income. Second, we find financial analysts' forecasts of net interest income reflect information provided by interest income sensitivity disclosures. Third, we find equity market responses to interest rate shocks as well as firms' interest rate betas are larger for banks with greater disclosed sensitivity of net interest income to interest rate changes. Across all of these tests, the informativeness of income sensitivity measures is incremental to that of regulatory data. These results suggest that interest income sensitivity disclosures are informative measures of interest rate risk. Our results contradict assertions that these disclosures are useless due to lack of relevance of income sensitivity, poor modeling techniques, and/or redundancy relative to regulatory data.

Accountants examine multiple indicators when assessing whether individual assets are impaired. Different indicators predict cash flows over varying time horizons, and their importance varies with how far into the future individual assets are expected to generate cash flows. We predict that earnings exhibits asymmetric timeliness with respect to multiple indicators, including stock return, sales change, and operating cash flow change, which differentially explain write-downs of current assets, long-lived tangible assets, and indefinite-lived goodwill. We predict an interaction effect between indicators, such that the total impact of several consistent indicators is greater than the sum of their individual impacts. Empirical estimates for U.S. firms are consistent with our predictions and yield new insights about the effects of multiple indicators for both conservatism and impairment research. Our multi-indicator asymmetric models also change inferences about the relative explanatory power of economic factors versus reporting incentives in asset impairments.

This paper extends prior literature on cost behavior by providing insights into how firms achieve changes to cost structure in response to two important risk drivers, i.e., demand uncertainty and financial risk. Using theory from labor economics, supply-chain management, and finance, we posit that demand uncertainty and financial risk influence cost management activities. Specifically, we argue that firms are likely to alter resource procurement choices to increase cost elasticity in response to these two risk drivers. We use data from California hospitals that allow for the calibration of three distinct resource procurement choices that increase cost elasticity: outsourcing, leasing of equipment, and hiring contract labor. Mediation analysis using 2,202 hospital year observations indicates that both demand uncertainty and financial risk influence cost elasticity. Importantly, these effects are mediated by the three aforementioned resource procurement choices. Overall, our findings support the view that firms make procurement choices to manage the risk associated with cost structures. Data Availability: Data used in this study are publicly available from the Office of Statewide Health Planning and Development (see: http://www.oshpd.ca.gov/).

We investigate the use, determinants, and earnings effects of special purpose vehicles (SPVs). Based on a proxy of SPV activity that can be applied to a broad cross-section of firms over time, we find a two-and-a-half fold monotonic increase in the percentage of firms using at least one SPV during the eight-year period from 1997 through 2004. Tobit regressions of the determinants of SPV use show that SPV activity increases with financial reporting incentives and economic and tax motivations, but strong corporate governance tends to mitigate their use. In addition, the evidence is consistent with SPVs arranged for financial reporting purposes being associated with earnings management, whereas the same does not appear to be the case for SPVs set up mainly for economic, tax, and other reasons.

We investigate a key assumption underlying much of the experimental research in financial accounting that graduate business students are a good proxy for nonprofessional investors. To conduct our investigation, we categorize recent experimental studies in financial accounting, based on the relative level of integrative complexity inherent in each study's task. We then conduct experiments using two tasks, one that is relatively low in integrative complexity and one that is relatively high in integrative complexity, and compare the responses of two groups of M.B.A. students and nonprofessional investors. Our results suggest that using M.B.A. students as a proxy for nonprofessional investors is a valid methodological choice, provided researchers give careful consideration to aligning a task's integrative complexity with the appropriate level of M.B.A. student. M.B.A. students who have completed their core M.B.A. courses and are enrolled in or have completed a financial statement analysis course are a good proxy for nonprofessional investors in tasks that are relatively low in integrative complexity. Though less definitive, the majority of our tests also suggest that these students are a good proxy for nonprofessional investors in tasks that are relatively high in integrative complexity. However, care must be taken when using students in the first-year core financial accounting course. In tasks that are relatively low in integrative complexity, these students perform similarly to nonprofessional investors except when they are asked to make an investment decision. In tasks that are relatively high in integrative complexity, these students acquire information similarly to nonprofessional investors, but they do not appear to integrate the information in a similar manner.