Journal of Accounting and Economics 

About: Journal of Accounting and Economics is an academic journal published by Elsevier BV. The journal publishes majorly in the area(s): Earnings & Earnings management. It has an ISSN identifier of 0165-4101. Over the lifetime, 1229 publications have been published receiving 299574 citations. The journal is also known as: Journal of accounting & economics.

Auditor size and audit quality

Abstract: Regulators and small audit firms allege that audit firm size does not affect audit quality and therefore should be irrelevant in the selection of an auditor. Contrary to this view, the current paper argues that audit quality is not independent of audit firm size, even when auditors initially possesses identical technological capabilities. In particular, when incumbent auditors earn client-specific quasi-rents, auditors with a greater number of clients have ‘more to lose’ by failing to report a discovered breach in a particular client's records. This collateral aspect increases the audit quality supplied by larger audit firms. The implications for some recent recommendations of the AICPA Special Committee on Small and Medium Sized Firms are developed.

Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature $

Abstract: Financial reporting and disclosure are potentially important means for management to communicate firm performance and governance to outside investors. We provide a framework for analyzing managers’ reporting and disclosure decisions in a capital markets setting, and identify key researchquestions. We th en review current empirical researchon disclosure regulation, information intermediaries, and the determinants and economic consequences of corporate disclosure. Our survey concludes that current research has generated a number of useful insights. We identify many fundamental questions that remain unanswered, and changes in the economic environment that raise new questions for research. r 2001 Published by Elsevier Science B.V.

The economic implications of corporate financial reporting

Abstract: We survey 401 financial executives, and conduct in-depth interviews with an additional 20, to determine the key factors that drive decisions related to performance measurement and voluntary disclosure. The majority of firms view earnings, especially EPS, as the key metric for an external audience, more so than cash flows. We find that the majority of managers would avoid initiating a positive NPV project if it meant falling short of the current quarter’s consensus earnings. Similarly, more than three-fourths of the surveyed executives would give up economic value in exchange for smooth earnings. Managers believe that missing an earnings target or reporting volatile earnings reduces the predictability of earnings, which in turn reduces stock price because investors and analysts dislike uncertainty. We also find that managers make voluntary disclosures to reduce information risk associated with their stock but at the same time, try to avoid setting a disclosure precedent that will be difficult to maintain. In general, management’s views support stock price motivations for earnings management and voluntary disclosure, but provide only modest evidence consistent with other theories of these phenomena (such as debt, political cost and bonus plan based hypotheses).

Performance matched discretionary accrual measures

Abstract: We examine the specification and power of tests based on performance-matched discretionary accruals, and make comparisons with tests using traditional discretionary accrual measures (e.g., Jones and modified-Jones models). Performance matching on return on assets controls for the effect of performance on measured discretionary accruals. The results suggest that performance-matched discretionary accrual measures enhance the reliability of inferences from earnings management research when the hypothesis being tested does not imply that earnings management will vary with performance, or where the control firms are not expected to have engaged in earnings management.

The conservatism principle and the asymmetric timeliness of earnings1

Abstract: I interpret conservatism as resulting in earnings reflecting ‘bad news’ more quickly than ‘good news’. This interpretation implies systematic differences between bad news and good news periods in the timeliness and persistence of earnings. Using firms’ stock returns to measure news, the contemporaneous sensitivity of earnings to negative returns is two to six times that of earnings to positive returns. I also predict and find that negative earnings changes are less persistent than positive earnings changes. Earnings response coefficients (ERCs) are higher for positive earnings changes than for negative earnings changes, consistent with this asymmetric persistence. ¢ 1997 Elsevier Science B.V. All rights reserved.