Existing studies on the value-relevance of R&D tend to overstate the R&D benefits and shed little light on the trade-off between the R&D benefits (mean effect) and their riskiness (variance effect). This study shows that the variance effect of R&D is on average more significant than their mean effect in bond valuation. Hence, for creditors, the R&D risk dominates their benefits. Furthermore, this study documents that R&D measures alone explain approximately 80% of cross-sectional variations in bond ratings and risk premium. These findings contribute to the debate over R&D accounting and the bond pricing literature.

Regulation Fair Disclosure, implemented on October 23, 2000, prohibits U.S. public companies from making selective, nonpublic disclosures to favored investment professionals. Regulation Fair Disclosure has a number of exclusions, however, including disclosure of nonpublic information to credit rating agencies. As a result, credit analysts at rating agencies have access to confidential information that is no longer made available to equity analysts, potentially increasing the information content of credit ratings. We examine the effect of credit rating changes on stock prices and find that the informational effect of downgrades and upgrades is much greater in the post-FD period.

Evidence contrasting U.S. insider trades in high- and low-jeopardy periods and across firms at high and low risk for 10b-5 litigation indicates that insiders condition their trades on foreknowledge of price-relevant public disclosures, but avoid profitable trades when the jeopardy associated with such trades is high, such as immediately before earnings announcements. Insiders avoid profitable trades before quarterly earnings are announced and sell (buy) after good (bad) news earnings announcements. Insiders trade most heavily after earnings announcements and profit from foreknowledge of price-relevant information in the forthcoming Form 10-K or 10-Q filing.

This study examines whether IPO disclosure requirements mandated by countries’ securities laws are associated with variation in IPO underpricing in international IPO markets. Our empirical analysis uses a unique sample of 6,025 IPOs from 34 countries over the period from 1995 to 2002. We show for the first time that the stringency of disclosure requirements for IPO prospectuses is negatively associated with the extent of IPO underpricing, after controlling for various country‐ and firm‐level determinants of underpricing. Moreover, we find that the disclosure effect on IPO underpricing is moderated by the extent of a country’s capital market integration. Taken together, our findings are consistent with the view that increased disclosure regulation appears to reduce IPO underpricing and hence the cost of equity, and that institutional factors such as capital market integration play an important role in understanding the economic consequences of disclosure regulation in international IPO markets.

We investigate whether issuers on negative credit watch manage earnings upward and whether such earnings management favorably influences the watch resolution. We find that rating, industry, and performance matched discretionary accruals reported during negative watch are significantly higher than their respective pre- and post-watch levels, after controlling for accrual reversal. Consistent with its opportunistic nature, we find that accrual management increases with issuers' incentives to avoid downgrade, and decreases with their earnings management constraints and the strength of the external monitoring. Surprisingly, such accrual management significantly increases the likelihood of a favorable resolution—issuers in the top half of the discretionary accruals distribution are 24 percent less likely to be downgraded than those in the propensity score matched bottom half. We find that issuers that avoid downgrades through income-increasing accrual management significantly underperform those that do not over the ensuing year, mitigating the signaling or measurement error explanations for our results. Finally, we find that accrual management does not reflect attempts to improve short-term credit quality.