ABSTRACT Commonly used Jones-type discretionary accrual models applied in quarterly settings do not adequately control for nondiscretionary accruals that naturally occur due to firm growth. We show that the relation between quarterly accruals and backward-looking sales growth (measured over a rolling four-quarter window) and forward-looking firm growth (market-to-book ratio) is non-linear. Failure to control for the effects of firm growth and performance on innate accruals leads to excessive Type I error rates in tests of earnings management. We propose simple refinements to Jones-type models that deal with non-linear growth and performance effects and show that the expanded models are well-specified and exhibit high power in quarterly settings where one is testing for earnings management. The expanded models are able to identify the presence of earnings management in a sample of restatement firms. Our findings have important implications for the use of discretionary accrual models in earnings management research. JEL Classifications: C15; M40; M41.

ABSTRACT This study investigates the role of the business press in the pricing of accounting information. Using a comprehensive dataset of more than 111,000 earnings-related business press articles published from 2000 to 2010, we find that press coverage of the annual earnings announcement mitigates cash flow mispricing, but has a negligible effect on accrual mispricing. We provide evidence that this impact is driven primarily by the press disseminating the information more broadly, rather than by the creation of new content that helps investors understand the implications of accounting information. Our results suggest that the business press plays an important role in facilitating the market's ability to efficiently impound accounting information into stock prices and provide new insights into the role of the business press as an information intermediary in capital markets.

ABSTRACT: Prior research documents that CEOs respond to transient ownership preferences by choosing actions to meet short-term earnings targets. This study examines whether contract designers anticipate these actions and respond by adjusting explicit CEO compensation contracts. We find that, in determining CEO cash bonuses, firms with high levels of transient investors, on average, place a relatively low weight on earnings and a relatively high weight on annual returns. Additionally, both the likelihood of granting equity and the magnitude of annual equity grants to CEOs are higher with a higher level of transient investors, after controlling for previously studied determinants of equity grants. The results suggest transient-owner trading behavior creates implicit incentives for CEOs to take actions that increase current earnings, and firms take these implicit incentives into account in the design of explicit CEO compensation contracts.

This paper investigates the effect of regulation that mandates open access to information on managers' disclosure choices and investors' reactions to disclosures. The recently passed Regulation FD (Reg FD) requires firms to make material disclosures broadly available. Using a sample of firms that previously restricted access to conference calls and a sample of firms that voluntarily allowed unlimited access to their calls in the pre-Reg FD period, we examine the effect of the new rule on managers' decisions regarding the timing, use, and information content of calls, as well as the effect on investors' trading behavior during the call. Our results indicate that Reg FD had a significant negative impact on managers' decisions to continue hosting conference calls and on their decisions regarding the optimal time to hold the call. However, contrary to the concerns of many critics, the magnitudes of these changes are not large. We do not find evidence that Reg FD decreased the amount of information disclosed during the call period, contrary to the concerns of Reg FD opponents. Finally, we find evidence that the new rule increased price volatility for firms that previously restricted access to their calls (relative to firms that previously held open calls) and that the amount of individual investor trading increased following the rule change. Overall, our results suggest that Reg FD impacted trading during the conference call window for firms most affected by the new regulation.

Pathways to Education is a comprehensive support program developed to improve academic outcomes of high school students from very poor social-economic backgrounds. The program includes proactive mentoring, daily tutoring, and group activities, combined with intermediate and long-term incentives to reinforce a minimum degree of mandatory participation; it began in 2001 for entering grade 9 students living in Regent Park, the largest public housing project in Toronto. It expanded in 2007 to include two additional Toronto projects. Comparing students from other housing projects before and after the introduction of the program, high school graduation and postsecondary enrollment rates rose dramatically for Pathways-eligible students, in some cases by more than 50 percent.

We show that financial knowledge is a key determinant of wealth inequality in a stochastic lifecycle model with endogenous financial knowledge accumulation, where financial knowledge enables individuals to better allocate lifetime resources in a world of uncertainty and imperfect insurance. Moreover, because of how the U.S. social insurance system works, better-educated individuals have most to gain from investing in financial knowledge. Our parsimonious specification generates substantial wealth inequality relative to a one-asset saving model and one where returns on wealth depend on portfolio composition alone. We estimate that 30-40 percent of retirement wealth inequality is accounted for by financial knowledge.

Would people choose what they think would maximize their subjective well-being (SWB)? We present survey respondents with hypothetical scenarios and elicit both choice and predicted SWB rankings of two alternatives. While choice and predicted SWB rankings usually coincide in our data, we find systematic reversals. We identify factors-such as predicted sense of purpose, control over one's life, family happiness, and social status-that help explain hypothetical choice controlling for predicted SWB. We explore how our findings vary by SWB measure and by scenario. Our results have implications regarding the use of SWB survey questions as a proxy for utility.

ABSTRACT The stylized fact that volatility is not priced in individual equity options does not withstand scrutiny. First, we show that the average return of heavily traded deep out‐of‐the‐money call options on stocks is −116 basis points per day. Second, Fama‐MacBeth estimates of the volatility risk premium in stock options are similar to those in S&P 500 Index call options. Third, the mean return of heavily traded delta‐hedged at‐the‐money calls (puts) is −23 (−30) basis points. Fourth, the variance risk premium in stock options is negative. Our analysis highlights the importance of microstructure biases and robustness in empirical work with options.