This study examines the impact of firms' environmental, social, and governance (ESG) disclosures on the pricing and nonpricing terms of banks' debt contracts. Using ESG disclosure scores and bank debt contract data for S&P 1500 firms between 2009 and 2021, we find strong evidence that banks impose more covenants on firms with lower ESG disclosure scores, particularly those with higher informational uncertainty, and weaker evidence that banks charge higher interest rates. Banks include restrictions on excess cash flow sweeps, asset sales sweeps, and collateral requirement general covenants when ESG disclosures are low. ESG disclosures remain a significant determinant of covenants after controlling for ESG performance and accounting for simultaneity between pricing and nonpricing terms of debt contracts. ESG disclosures provide banks with incremental information on firms' default risk beyond what is available from financial data. Our findings suggest that increasing ESG disclosures can yield favorable debt contract terms for firms.
Accounting standards exclude most securities gains and losses from net income until the securities are sold, providing incentives to sell securities based on the gain/loss positions. We revisit prior literature and deepen understanding about this behavior among banks in a variety of ways. First, we find that what the prior literature calls earnings "smoothing" is more precisely characterized as boosting low earnings; banks boost low earnings via gain selling but do not materially reduce high earnings via loss selling. Second, we find this behavior more aligns with opportunism than with signaling, and a specific opportunistic motive is to meet the regulatory guideline for dividend payments. Finally, we uncover additional tendencies of banks, which include selling larger portions of gain positions than loss positions, more aggressively using gain selling to offset a given amount of loss selling than vice versa, and selling securities in a pattern that conforms to prospect theory.
We exploit analysts' forecasts of nonearnings measures and a granular accruals dataset to assess different explanations for why accruals are associated with analyst forecast errors. We evaluate four explanations: one accounting-based (the estimation error hypothesis) and three economics-based (related to investment activity, demand slowdowns, and product-market shocks). We find earnings forecast errors are stable over time, almost completely explained by revenue and cash flow errors, span multiple years, and are more pronounced in the presence of product-market shocks. Using a novel dataset of accruals not available in Compustat, we find no evidence that accruals with higher reporting discretion explain analyst forecast errors. Collectively, our evidence suggests that analysts' forecast errors are best explained by a positive correlation between accruals and productmarket shocks, indicating that these errors stem from the challenge of predicting how economic shocks affect future earnings rather than a failure to understand accounting principles or detect earnings management.
The Financial Accounting Standards Board (FASB) staff invites academics to conduct research on Accounting Standards Update 2016-13 (or current expected credit loss (CECL) standard) and share their results, whether published or in process, with the FASB via the Academic Paper Submission Portal (https://www.fasb.org/ about-us/connecting-with-stakeholders/academics#Share-Your-Research-With-the-FASB). The FASB staff will read all submitted studies and incorporate the relevant findings in the CECL post-implementation review process. In an effort to support the FASB staff's interest in CECL, this article briefly summarizes the accounting changes under CECL, research topics of interest, and existing academic research and provides links to helpful resources.
This paper reinvestigates opinion divergence, short-sale constraints, and earnings announcement returns, employing best practices from prior literature. I find that information asymmetry-a cleaner proxy for opinion divergence-is positively associated with returns, whereas change in asymmetry is negatively associated with returns, consistent with Varian (1985). I find that the widely-documented negative association between dispersion and returns-typically interpreted as consistent with Miller (1977)-is driven by uncertainty, suggesting that dispersion may represent a noisy proxy for opinion divergence. For firms more likely to be short-sale-constrained- 3.5 percent of the sample-I find evidence of a robust, general short-sale constraint (SSC) effect, consistent with Miller. Interactions of dispersion and SSC also generate results consistent with Miller, but interactions of information asymmetry and SSC generate mixed results inconsistent with Miller. Results suggest that both Varian and Miller can be true, but that Miller applies to a limited number of firms.
This paper examines a mixed data sampling (MIDAS) approach to accounting research. MIDAS regression models parsimoniously incorporate variation embedded in existing economic data that are observed at much higher frequencies than accounting data. The additional source of data variation creates an opportunity to address new and important questions in accounting research. We develop and outline four new MIDAS models within the general framework that are simple to estimate and capture economic properties that are relevant to accounting research. We demonstrate the efficacy of our models with empirical applications to the January effect and to earnings response coefficients, which together illustrate the potential to expand the boundaries of accounting research by getting more out of high-frequency data.
We examine whether investor inattention influences managers’ non-GAAP earnings disclosures. Hirshleifer and Teoh’s (2003) theoretical model predicts that managers are more likely to disclose upwardly-biased non-GAAP metrics when investors are inattentive. Employing a measure that captures exogenous variation in institutional investor inattention, we find that managers are more likely to provide non-GAAP disclosures, particularly those where non-GAAP earnings are greater than GAAP earnings, when inattention is high. Moreover, inattention is positively associated with the magnitude of non-GAAP exclusions, which suggests managers present better non-GAAP performance to inattentive investors. Consistent with managers exploiting investors’ limited attention, we find that stock prices respond more strongly to non-GAAP exclusions when investors are inattentive and that managers are more likely to respond to inattention with income increasing non-GAAP disclosures if they sell shares following the disclosure. Taken together, these findings suggest that managers respond opportunistically to inattentive institutions by disclosing aggressive non-GAAP earnings metrics.
In April 2025, the Financial Reporting Policy Committee of the Financial Accounting and Reporting Section of the American Accounting Association submitted a comment letter to the Financial Accounting Standards Board (FASB) addressing the accounting for financial key performance indicators (KPIs) used by business entities. Financial KPIs, as defined by the FASB, are most commonly referred to as non-GAAP metrics in the academic literature. This paper reviews the current regulatory frameworks governing financial KPIs—both in the United States and internationally—and summarizes key insights from our letter alongside relevant academic research. It also highlights opportunities for future research, including important questions related to non-GAAP reporting that can now be explored using new data made available through ASU 2024-03, Disaggregation of Income Statement Expenses (issued November 2024), ASU 2023-07, Segment Reporting: Improvements to Reportable Segment Disclosures (issued November 2023), and IFRS 18, Presentation and Disclosure in Financial Statements (issued April 2024). JEL Classifications: M40; M41; M48.
We thank Alan D. Jagolinzer (editor) and an anonymous reviewer for their valuable comments and suggestions. This paper has benefitted from feedback from Kurt Gee and participants at the 2021 Canadian Academic Accounting Association Annual Conference, the 2021 American Accounting Association Annual Meeting, the 2022 Hawaii Accounting Research Conference, and workshops at the University of Waterloo, McMaster University, The University of Hong Kong, and the Accounting Design Project hosted by Columbia University. We thank Shiyu Chen for excellent research assistance. The authors of this publication have no conflicts of interest related to this research.
The Financial Reporting Policy Committee (the Committee) of the Financial Accounting and Reporting Section of the American Accounting Association is responsible for providing input to standard setters on matters concerning financial reporting. The Financial Accounting Standards Board (FASB) is currently considering a standard-setting project related to the accounting for and disclosure of intangible assets. In May 2025, at the Committee's request, we submitted a comment letter to the FASB in response to its Invitation to Comment on this topic. This paper summarizes the key positions presented in the letter and highlights opportunities for future academic research that may inform the development of accounting standards for intangible assets.
This paper summarizes a comment letter we submitted to the Financial Accounting Standards Board in March 2025 in response to its Proposed Accounting Standards Update on accounting for government grants by business entities. We submitted a comment letter at the request of the Financial Reporting Policy Committee, which is charged by the Financial Accounting and Reporting Section of the American Accounting Association with responding to requests for comment from standard setters on financial reporting issues. The proposed amendments aim to establish authoritative guidance on accounting for government grants received by business entities. We conclude that the proposed amendments will not provide decision-useful information to financial statement users. We detail the concerns underlying this conclusion and offer recommendations to address them. We also summarize findings from academic research and offer suggestions for future research.
The possibilistic view of information and uncertainty, rooted in fuzzy set theory and possibility theory, is distinct from the probabilistic view adopted by economics-based accounting research. Fuzzy set and possibility theories provide a versatile framework for modeling situations where uncertainty arises from vague boundaries of natural language. We discuss two potential applications to accounting research: (1) comparing information structures with linguistic imprecision and (2) measuring the uncertainty and relative information arising from linguistic imprecision in financial disclosures.
In this paper, we examine legitimacy theory, a well-established framework within psychology and sociology, and introduce it to accounting academics through an exploration of its prior uses in other fields, its potential implications for investment decision-making, and a targeted experimental application. Legitimacy theory posits that individuals respond to a multilevel evaluation of the legitimacy of an entity or system. Based on their simultaneous appraisals of the overall societal benefit and the appropriateness of specific actions undertaken, individuals choose support or opposition. Applied to an investment setting, this framework provides insight into the multidimensional expectations of investors. In addition to covering the existing state of the theory, our study also extends it by exploring how a company's legitimacy (or lack thereof) may change over time, suggestive of a dynamic aspect of the framework. We conclude with suggestions for future applications of the theory.
Casey, Gao, Kirschenheiter, Li, and Pandit (2016) present a modified model of financial statement articulation using the Financial Statement Balancing Model (FSBM) from Compustat. We simplify their approach by classifying variables as either (1) line-item accounts (e.g., inventory) or (2) calculable amounts (e.g., total assets). We illustrate how this classification allows Compustat users to efficiently resolve nulls to increase sample size and data quality in empirical analyses. We expand on Casey et al. (2016) by presenting top-level and sublevel models that maintain data integrity and articulation, providing users flexibility based on their needs. Finally, to highlight the versatility of Compustat's data, we present several ways to present the cash flow statement, roll-forward to estimate cash flow statements when unavailable (prior to 1988), and owners' equity statement roll-forward.
Research finds that analysts limit managers' ability to learn from their firms' stock prices by disseminating information already known to managers. However, regulatory changes have since motivated analysts to produce more information unknown to managers. As a result, we hypothesize that analysts enhance managerial learning from prices in the current environment. Our findings support this: in the regulatory environment post-Reg FD and the Global Settlement, analysts increase managerial learning from prices, especially when analysts are of higher quality or provide insights to traders who are likely to incorporate private information into prices. Our results are robust to controlling for managerial disclosure, considering the impact of correlated omitted variables, and employing brokerage mergers and closures to identify exogenous reductions in analyst coverage. Our findings update the understanding of analysts' role in shaping managerial learning from prices.
ABSTRACT We describe social media as a setting for accounting research. Social media provides a setting in which accounting researchers can observe how firms and stakeholders access and share information on public forums. We review the literature and provide a framework based on incentives and consequences for accessing and sharing financial news on social media. To aid future research, we offer institutional background on several social media platforms along with guidance on using social media data for accounting research, which is accompanied by code in our Online Appendix. Finally, throughout the paper, we provide avenues for future research using social media platforms as a setting for accounting research. Data Availability: All data are available from the sources described in the text. JEL Classifications: M40.
ABSTRACT Kajüter, Klassmann, and Nienhaus (2019) (KKN) find that mandating quarterly reporting is net costly for small firms. In this study, we re-examine the firm value effect of quarterly reporting using Singapore’s regulatory change from a size-based to a risk-based approach to quarterly reporting, in which only high-risk firms are mandated to report quarterly. We find that prior mandatory quarterly reporters do not react significantly to the regulatory relaxation. However, firms with a strong demand for transparency and small firms previously exempted from quarterly reporting react significantly negative (−0.83 and −1.67 percent, respectively). Consistent with KKN, high-risk firms that are now required to report quarterly perceive the mandate as burdensome (−2.80 percent). Moreover, firms exhibit heightened uncertainty after the announcement of the regulatory change until the publication of high-risk firms. Finally, quarterly reports of high-risk firms do not generate information spillovers to nonquarterly reporters, whereas those of voluntary continuers do so. JEL Classifications: M41; M48.
We use statistical properties of interval forecasts to show that management range forecast width is a function of two distinct factors: uncertainty about future earnings and the statistical confidence level (i.e., the ex ante likelihood that earnings will fall within the forecasted bounds). Conceptually, the notion of forecast confidence levels is missing from the management forecast literature. To demonstrate the importance of confidence levels when interpreting forecast widths, we develop a measure of the implied confidence level associated with each forecast and show that confidence levels, as opposed to uncertainty, explain the majority of variation in widths. We also identify several managerial traits and incentives that affect forecast widths through confidence levels. Finally, we show that conditioning width on confidence levels improves forecast width as a measure of uncertainty about future earnings. Our study demonstrates the importance of confidence levels for understanding the information content of forecasts widths.
The Ebert, Simons, and Stecher (2017) disclosure model predicts that weaker firms, i.e., those that have lower operating performance, will make more disaggregated discretionary disclosures than stronger firms, a result somewhat at odds with traditional discretionary disclosure theory that predicts that stronger firms are more likely to voluntarily disclose. We use the IPO S-1 filing setting to test Ebert et al. (2017) and find that higher S-1 disaggregated discretionary disclosure quantity is significantly associated with lower operating performance. Our setting and analyses also plausibly rule out several alternative explanations.
We examine managerial incentives to disclose the gender diversity of a firm's workforce. We exploit information from employees' online profiles to infer the gender diversity of nondisclosing firms. Within industry, we find that firms are more likely to disclose gender diversity when women comprise a higher proportion of their workforce, consistent with managerial incentives to disclose favorable information. However, disclosure is more prevalent in industries with a lower proportion of female employees, consistent with a poor gender diversity environment making a firm's gender diversity appear relatively more favorable. Regarding the potential benefits of disclosure, disclosing firms enjoy more favorable media coverage of the firm's diversity and attract a larger number of gender-lens ESG funds. Disclosing firms with a higher proportion of female employees enjoy greater benefits. Overall, our study broadens our understanding of the evolving corporate disclosure landscape by providing evidence on firms' incentives to disclose workforce gender diversity.
