https://faculty.fuqua.duke.edu/~charvey/Research/Working_Papers/W73_The_economic_implications.pdf

The economic implications of corporate financial reporting

http://www.course.sdu.edu.cn/G2S/eWebEditor/uploadfile/20130217204534275.pdf

Earnings management through real activities manipulation

Researchers have used various measures as indications of "earnings quality" including persistence, accruals, smoothness, timeliness, loss avoidance, investor responsiveness, and external indicators such as restatements and SEC enforcement releases. For each measure, we discuss causes of variation in the measure as well as consequences. We reach no single conclusion on what earnings quality is because "quality" is contingent on the decision context. We also point out that the "quality" of earnings is a function of the firm's fundamental performance. The contribution of a firm's fundamental performance to its earnings quality is suggested as one area for future work.

/pdf/understanding-earnings-quality-a-review-of-the-proxies-their-1r9rjtuq8l.pdf

Understanding Earnings Quality: A Review of the Proxies, Their Determinants and Their Consequences

https://repository.upenn.edu/cgi/viewcontent.cgi?article=1004&context=accounting_papers

We document that accrual-based earnings management increased steadily from 1987 until the passage of the Sarbanes Oxley Act (SOX) in 2002, followed by a significant decline after the passage of SOX. Conversely, the level of real earnings management activities declined prior to SOX and increased significantly after the passage of SOX, suggesting that firms switched from accrual-based to real earnings management methods after the passage of SOX. We also find evidence that the accrual-based earnings management activities were particularly high in the period immediately preceding SOX. Consistent with these results, we find that firms that just achieved important earnings benchmarks used less accruals and more real earnings management after SOX when compared to similar firms before SOX. Finally, our analysis provides evidence that the increases in accrual-based earnings management in the period preceding SOX were concurrent with increases in the fraction of equity based compensation.

https://papers.ssrn.com/sol3/Delivery.cfm/2451_27548.pdf?abstractid=1280711&rulid=128123&mirid=4

Real and Accrual-Based Earnings Management in the Pre- and Post-Sarbanes Oxley Periods

Employee stock options, EPS dilution, and stock repurchases

This paper examines a real cost of awarding employee stock options. Based on the observation that managers are extremely concerned about earnings-per-share dilution in equity related compensation, we predict and find that firms experiencing significant employee stock option (ESO) exercises shift resources away from real investments towards the repurchase of their own stocks. We further find weak evidence of a decline in subsequent firm performance (as measured by return on assets) for several years following the cut in discretionary investments as a result of stock option exercises, though this result is sensitive to the metric used to measure performance. Collectively, our findings indicate that ESO exercises potentially impose a real cost on the firm in terms of foregone investment opportunities.

Real Investment Implications of Employee Stock Option Exercises

For a sample of U.S. firm years from 1980 through 1996 we document a positive association between the excess value of diversification as defined by Berger and Ofek [1995] and security analyst ratings of voluntary disclosure as developed by the Association for Investment Management and Research. We also examine an alternative proxy for disclosure quality that captures the degree of segment disaggregation and document a positive association between this measure and excess value. Our results are robust to controls for firm performance and information environment. Taken together, these phenomena suggest that disclosure plays a monitoring role in disciplining management's investment decisions. However, tests of the association between disclosure and the value of firms' investment spending yield mixed results.

Disclosure Quality and the Excess Value of Diversification

Accounting standard setters face a perpetual challenge in balancing relevance and reliability when establishing generally accepted accounting principles. This tension is especially heightened when ...

The Information Content of Goodwill Impairments and SFAS 142

For a sample of U.S. firm years spanning the time period 1980 through 1996 we document a positive association between the excess value of diversification as defined by Berger and Ofek [1995] and security analyst ratings of voluntary disclosure as developed by the Association for Investment Management and Research (i.e., AIMR rankings). Our results are not attributable to differences in proxies for firm performance or information environment. Moreover, we find no relation between the excess values of single segment firms and their AIMR rankings. Taken together, these phenomena suggest that disclosure plays a monitoring role in disciplining management's operating decisions. We also examine an alternative proxy for disclosure quality that captures the degree of segment disaggregation, and document a positive association between this measure and excess value. Additional analyses of the association between non-market based measures of performance (i.e., return on assets) and our disclosure proxies provide mixed support for the monitoring effect hypothesis.

https://papers.ssrn.com/sol3/Delivery.cfm?delivery_id=340720

Daniel A. Bens

Papers

Employee stock options, EPS dilution, and stock repurchases

Real Investment Implications of Employee Stock Option Exercises

Disclosure Quality and the Excess Value of Diversification

The Information Content of Goodwill Impairments and SFAS 142

Disclosure Quality and the Excess Value of Diversification