If debt markets can price the risk of projects accurately, then the interests of shareholders and the regulator diverge. Shareholders see their value maximised by an equity-rewarded executive. However we demonstrate that such executives destroy welfare by selecting excessively risky projects due to two types of government-induced distortions: the debt tax shield and the implicit too-big-to-fail...

As an important long-term incentive mode, the equity incentive promotes the managers to contribute to the interest uniformity of managers and shareholders. By using Paired-Samples T test methods and regression analysis method and choosing companies that issued the equity incentive plan in 2007 as the sample, this paper comparatively analyzes the differences in the performance of companies befor...

There are two approaches which investors can exercise when using accounting information are commonly discussed, either to the use of financial reporting to value the company or the use of financial reporting to assess the management's stewardship of the company. Despite the fact that US GAAP, IFRS, and UK GAAP are all market oriented sets of accounting standards, both FASB and IASB are more inc...

We analyze the financial statements of 58,653 firm-years from 34 countries for the period 1985-1998 to construct a panel data set measuring three dimensions of reported accounting earnings for each country – earnings aggressiveness, loss avoidance, and earnings smoothing. We hypothesize that these three dimensions are associated with uninformative or opaque earnings, and so we combine these thr...

This paper examines whether the mandatory adoption of International Accounting Standards (IAS) in the European Union (EU) in 2005 reduces the cost of equity capital. Using a sample of 6,456 firm-year observations of 1,084 EU companies during the period of 1995 to 2006, I find evidence that mandatory introduction of IAS, on average, significantly reduces the cost of equity for mandatory adopters...

We provide measures of absolute and relative equity agency costs for corporations under different ownership and management structures. Our base case is Jensen and Meckling's (1976) zero agency-cost firm, where the manager is the firm’s sole shareholder. Utilizing a sample of 1,708 small corporations from the FRB/NSSBF database, we find evidence supporting several predictions of agency cost theo...

Although brand equity is a widely accepted concept, its definition is frustratingly elusive (Knowles, 2008). Our aim thereby is to point the direction for future research on the conceptualization of brand equity, as well as to encourage theoretical and empirical studies that assess its possible consequences. We argue for the need to distinguish between brand equity and brand value, which, altho...

We investigate relations between inside ownership, managerial expenses and equity valuations. Our engine of analysis —Real Estate Investment Trusts (REITs) —provides a unique and rich framework for analysis since we can calculate extremely accurate measures of asset replacement costs, and hence relative valuation (Tobin's Q). Further, the nature of the financial statements allows us to examine ...

* This article is based on a paper originally published as “Why and How to Design a Contingent Convertible Debt Requirement,” Chapter 5 in Rocky Times: New Perspectives on Financial Stability, edited by Yasuyuki Fuchita, Richard J. Herring and Robert E. Litan, Washington: Brookings/NICMR Press, 2012. For helpful comments, the authors wish to thank, without implicating, Don Chew, Wilson Ervin, M...