We examine firms' financial reporting practices during the missing months that are induced by fiscal year changes and not covered by regular quarters. We find that firms tend to report much lower income for the missing months than for adjacent quarters, mainly by recording higher operating expenses. We also find that managers have various incentives to manage earnings. Executive compensation is not tied to firm performance in the transition period as it is in adjacent fiscal years. Growth firms, firms with poor stock returns, and firms with weak external and internal monitoring tend to manage earnings more. Finally, we find that firms are more likely to meet or beat earnings targets in the subsequent quarter by reporting lower income in the missing months. Investors and analysts perceive the earnings surprise to be less persistent in the quarter after than in the quarter before the missing months. Data Availability: Data are available from sources identified in the paper.

We find that mean municipal debt costs are greater following financial restatement disclosures. Comparisons of the relative use of municipal debt, and of the use of unsecured versus secured debt, corroborate that financial restatements increase the cost of municipal debt financing. Additional analyses indicate that adverse consequences of restatements are mitigated by strong audit oversight and by provisions that encourage direct voter participation in the governance process. The evidence supports the use of restatements as a summary measure of financial reporting quality in the municipal context and informs thinking about auditor and voter oversight in the municipal financial reporting process.

This paper examines the implications of tax loss carryback incentives for corporate reporting decisions and capital market behavior. During the 1981 through 2010 sample period, we find that firms increase losses in order to claim a cash refund of recent tax payments before the option to do so expires, and we estimate that firms with tax refund-based incentives accelerate about $64.7 billion in losses. Tax-motivated loss shifting is reflected in both recurring and nonrecurring items and is more evident for financially constrained firms. Analysts do not generally incorporate tax-motivated loss shifting into their earnings forecasts, resulting in more negative analyst forecast errors for firms with tax-based incentives than for firms without. Holding earnings surprises constant, however, investors react less negatively to losses reported by firms with tax loss carryback incentives. Data Availability: Data are available from sources identified in the paper.