Tag Archives: accounting

Do Firms Smooth Earnings Less When They Can Hedge Noise Better? 

By | June 26, 2023

Using accounting discretion to smooth earnings is believed to be pervasive. For example, in an influential survey of CFOs, 96.9% of respondents indicate a preference for reporting smooth earnings. The underlying motives and desirability of this phenomenon, however, remain up for debate.   Under one interpretation, managers smooth earnings to mask poor decision making or rent… Read More »

Who Sells Cryptocurrency?

By | January 2, 2023

On March 9, 2022, U.S. President Joe Biden issued a pivotal Executive Order “outlining the first ever, whole-of-government approach to addressing the risks and harnessing the potential benefits of digital assets and their underlying technology.” Meanwhile, the Securities and Exchange Commission (SEC) considers protecting “main street” investors to be at the heart of U.S. financial… Read More »

Accounting Conservatism and the Agency Problems of Overvalued Equity 

By | December 21, 2022

In capital markets, the stock market value of a company can sometimes exceed its underlying (fundamental) value. Such overvaluation can materialize over months or even years. Sustained overvaluation is viewed in academic research as a threat to the functioning of capital markets, being at the root of several value-destroying episodes that made the financial system… Read More »

Anti-Corruption Laws and Geographic Reporting Transparency 

By | December 19, 2022

Do companies attempt to disguise their exposure to foreign corruption? Our research investigates whether U.S. companies respond to heightened regulatory risk exposure from foreign anti-corruption laws by increasing or decreasing their geographic reporting transparency regarding their underlying exposure to countries with high risk of corruption.  The U.S. Foreign Corrupt Practices Act (FCPA) exposes U.S. and… Read More »

Variable Leases under ASC 842: First Evidence on Properties and Consequences 

By | December 13, 2022

The new lease accounting standard ASU 2016-02, Lease (Topic 842), codified as ASC 842, requires firms to recognize both finance and operating leases on their balance sheets. However, the Financial Accounting Standards Board (FASB) made an exception for leases with variable payments, which can still be kept off-balance-sheet, affecting a sizable portion of total lease… Read More »

Private Equity Buyout Valuations and Discounted Cash Flow 

By | October 5, 2022

Private equity firms have been a mainstay of the mergers and acquisitions (“M&A”) industry for decades.  Private equity firms are in the business of acquiring companies and subsequently selling them, ideally at a higher price.  Those returns are then distributed to the investors of the underlying private equity fund after the private equity firm has… Read More »

Are Foreign Donors Good Monitors?

By | June 28, 2021

Economic and accounting literature has long found that foreign investments provide a multitude of benefits to local stock markets and economies. Foreign inflows to for-profit firms are found to harvest not only capital but also managerial and marketing skills in addition to business connections and human resource development. For-profit foreign institutional investors have also been… Read More »

Why Do Lenders Include Cost Savings and Synergy Add-backs in Loan Agreements?

By | June 9, 2021

Accounting is conservative. Under Generally Accepted Accounting Principles (GAAP), a firm should recognize losses before the losses are realized but postpone the recognition of gains until the gains are realized. In other words, the conservative accounting principle promotes timely loss recognition at the expense of timely gain recognition. However, in debt contracting, where lenders and… Read More »