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.

Multi-year forecasts of bank performance under stressful economic conditions determine large institution regulatory capital requirements and yet the accuracy of these forecasts is undocumented. I compare the accuracies of alternative stress test model forecasts using the financial crisis as the stress scenario. Models include specifications that mimic the Federal Reserve CLASS model and alternatives that use Lasso, the AIC and an abridged set of explanatory variables. A simple single-equation Lasso model has, by far, the best forecast accuracy. Large differences in model forecast accuracy are undetectable from estimation sample statistics. These findings highlight the need for new methods for validating bank stress test models.

Accounting comparability among peer firms in the same industry reflects the similarity and the relatedness of firms’ operating environments and financial reporting. From the perspectives of “inherent audit risk” and “external information efficiency,” comparability is helpful for auditors in assessing client audit risk and lowers the costs of information acquisition, processing, and testing. I posit that the availability of information about comparable clients helps improve audit efficiency and accuracy. Empirical results show that comparability is negatively related to audit effort (surrogated by audit fees and audit delay). Moreover, comparability is negatively associated with the likelihood of audit opinion errors. These findings are robust to different specifications of regression models, particularly for the “endogeneity” issues due to the possible reverse causality that auditor style might influence client firms’ comparability. In sum, the study shows that accounting comparability enhances the utility of accounting information for external audits.

The importance of evolutionary forces for comparative economic performance across societies has been the focus of a vibrant literature, highlighting the roles played by the Neolithic Revolution and the prehistoric "out of Africa" migration of anatomically modern humans in generating worldwide variations in the composition of human traits. This essay provides an overview of the literature on the macrogenoeconomics of comparative development, underscoring the significance of evolutionary processes and of human population diversity in generating differential paths of economic development across societies. Furthermore, it examines the contribution of a recent hypothesis set forth by Nicholas Wade, regarding the evolutionary origins of comparative development, to this important line of research.

The Dodd–Frank Act created differential regulatory requirements for banks above specified asset size thresholds. Event study results imply greater expected net regulatory costs for above-threshold banks. Consistent with hypotheses that near-below-threshold banks alter their behavior to attempt to avoid or delay the regulatory costs and/or to ensure growth that they do experience is highly beneficial, we find that near-below-threshold banks grow assets, risk-weighted assets, and total loans more slowly, and charge higher rates on commercial loans. The results suggest that the Dodd–Frank Act created costs that near-below-threshold banks attempt to avoid by altering their behaviors in economically important ways.

Treasury Inflation-Protected Securities (TIPS) are frequently thought of as risk-free real bonds. Using no-arbitrage term structure models, we show that TIPS yields exceeded risk-free real yields by as much as 100 basis points when TIPS were first issued and up to 300 basis points during the 2007–2008 financial crisis. This spread predominantly reflects the poorer liquidity of TIPS relative to nominal Treasury securities. Other factors, including the indexation lag and the embedded deflation protection in TIPS, play a much smaller role. Ignoring this spread also significantly distorts the informational content of TIPS break-even inflation, a widely used proxy for expected inflation.