Acknowledgments We gratefully acknowledge the comments of Sudipta Basu, Christian Leuz and Jerry Zimmerman, the referee, and workshop participants at the Universities of Amsterdam and Chicago. We are grateful for financial support from the University of Chicago, Graduate School of Business. Abstract We provide a simple test of " costly contracting " and " value relevance theories " of accountin...

Fundamental economic principles provide a rationale for requiring financial institutions to use mark-to-market, or fair value, accounting for financial reporting. The recent turmoil in financial markets, however, has raised questions about whether fair value accounting is exacerbating the problems. In this paper, we review the history and practice of fair value accounting, and summarize the lit...

Recent studies show that regression-based estimates of accounting conservatism reflect both differences in the asymmetric recognition of bad news and differences in asset composition. In particular, a firm’s market value and returns reflect both assetsin-place and expected future rents, while book values tend to reflect only assets-in-place. We propose two tests that remove the effect of asset ...

This paper investigates how the characteristics of information security incidents and disclosures in financial reports affect the valuation of a firm. Building on theories of disclosures in the accounting literature, we investigate investor reaction to disclosures through both quantitative and qualitative analyses. A cross-sectional analysis is first performed to examine the effect of the numbe...

We provide a simple comparative test of contracting and value relevance theories of accounting, using data on the importance of countries’ debt and equity markets. Contracting (debt markets) theory predicts conditional conservatism, in the Basu (1997) sense of asymmetrically timelier loss recognition than gain recognition, as proxied by a stronger relation between earnings and negative returns....

Policy makers and corporations have recently emphasized a code of ethics as an effective aspect of corporate governance. The corporate governance literature in accounting, however, provides little empirical or theoretical support for this emphasis. We address this gap between public policy and the literature by studying the effectiveness of a code of ethics in an experimental setting. Using Bic...