This study presents conceptual and empirical analyses of discretionary accrual reversal in the earnings management context. We specifically focus on the extent that income-increasing (decreasing) discretionary accruals initiated in a prior period reverse to become income-decreasing (increasing) accruals in the current period. The analysis suggests that the extent that such reversals constrain the ability to manage toward earnings objectives depends on both the magnitude of past accrual-based earnings management and the reversal speed of past discretionary accruals. To demonstrate the empirical implications of the analysis, we consider discretionary accrual reversal speed as an additional determinant of the balance sheet constraint on earnings management (Barton and Simko 2002). We show that, conditional on the magnitude of net operating asset overstatement, the probability of achieving quarterly earnings forecasts varies inversely with reversal speed.

We examine the sex differences in the pay of school teachers in Missouri. In Missouri school districts, pay is determined by a salary schedule that maps teaching experience and education level of an individual to a salary level. In spite of this apparently mechanical rule for determining pay, female teachers earn less than male teachers, after controlling for experience and education. We explore how such a difference could arise from differential job mobility and find some evidence to support this idea. However, within district differences in pay are a more important source of differences in pay between men and women.

Electronic medical records (EMRs) facilitate fast and accurate access to patient records, which could improve diagnosis and patient monitoring. Using a 12-year county-level panel, we find that a 10 percent increase in births that occur in hospitals with EMRs reduces neonatal mortality by 16 deaths per 100,000 live births. This is driven by a reduction of deaths from conditions requiring careful monitoring. We also find a strong decrease in mortality when we instrument for EMR adoption using variation in state medical privacy laws. Rough cost-effectiveness calculations suggest that EMRs are associated with a cost of $531,000 per baby’s life saved.

We investigate the economic forces that influence noncompliance with mandatory compensation disclosures and the effect of a subsequent focused enforcement action. We utilize SEC evaluations of compensation disclosures mandated by rules adopted in 2006 to examine whether noncompliance is associated with excess CEO compensation, proprietary costs, or previous media attention. We further test whether subsequent CEO compensation declines after the SEC publicly identifies noncompliance. We construct measures of defective disclosures from SEC critiques and find that disclosure defects are positively associated with excess CEO compensation and media criticism of CEO compensation during the previous year. We find no evidence supporting the contention that compensation disclosure defects are associated with proprietary costs. Furthermore, we are unable to document that the level of disclosure defects identified by the SEC is associated with a reduction in excess CEO compensation in the subsequent year. Data Availability: Data are available from public sources identified in the paper.

This study investigates the role that a firm’s internal audit function (IAF) plays in the disclosure of material weaknesses reported under Section 404 of the Sarbanes-Oxley Act of 2002 (U.S. Congress 2002). Using data from 214 firms, we examine the relation between material weakness (MW) disclosures and various IAF attributes and activities. Our results indicate that MW disclosures are negatively associated with the education level of the IAF and the extent to which the IAF incorporates quality assurance techniques into fieldwork, audits activities related to financial reporting, and monitors the remediation of previously identified control problems. The timing of Section 404 work and the nature of follow-up monitoring suggests that these aspects of IAF quality help prevent MWs from occurring. We find that MW disclosures are positively associated with the IAF practice of grading audit engagements and external-internal auditor coordination, suggesting that these activities increase the effectiveness of Section 404 compliance processes.

This paper presents a new model of political competition in which candidates belong to factions. Before elections, factions compete to direct local public goods to their local constituencies. The model of factional competition delivers a rich set of implications relating the internal organization of the party to the allocation of resources. In doing so, the model provides a unified explanation of two prominent features of public resource allocations: the persistence of (possibly inefficient) policies and the tendency of public spending to favor incumbent party strongholds over swing constituencies.

This study addresses whether firms’ share prices correctly reflect two accounting measures: dirty surplus and really dirty surplus. Dirty surplus is readily observable from the financial statements, but really dirty surplus, which arises from recognizing equity transactions such as employee stock option exercises at other than fair market value, is not. Findings show that dirty surplus and really dirty surplus are irrelevant for forecasting abnormal comprehensive income. However, findings also indicate that investors appear to undervalue really dirty surplus. Hedge returns are insignificant when portfolios are formed based on dirty surplus, but are significantly positive based on really dirty surplus. Really dirty surplus positive hedge returns are robust to a variety of sensitivity tests. Taken together, the findings are consistent with either investors over-valuing firms that have large negative really dirty surplus or really dirty surplus being correlated with an unmodeled risk factor.

US health care expenditures reached $2.5 trillion in 2009, representing 17.6 percent of gross domestic product (GDP) and $8,086 per person (US Department of Health and Human Services Centers for Medicare and Medicaid Services 2011). Since health care represents a large and growing share of the economy, and factors such as population aging imply that chronic disease treatment will continue to expand as a share of health expenditures, developing methods for assessing the value of quality improvement for chronic disease spending is of increasing importance for accurately measuring real economic activity. This paper develops a method for assessing the value of quality changes associated with health care for patients living with one important chronic disease, diabetes mellitus, using 11 years of detailed data on spending and quality of care for over 800 patients. We first provide an overview of measurement issues for health care quality, and then present our data, methods, results, and a brief discussion.