Springer Science and Business Media LLC

While accounting textbooks emphasize the roles of budgeting in controlling and coordinating agents' activities, the principal-agent literature has focused primarily on the control aspect. Recent papers have studied the coordination aspect of budgeting in settings in which the agents are technologically dependent (sequential or joint production is considered). In this article, we develop a role for budgeting in coordination, despite the agents being technologically independent (individual production is considered). In our model, the principal uses relative performance evaluation to extract information rents from the agents. However, the use of relative performance evaluation results in a multiple equilibria (tacit collusion) problem. The value of budgeting procedures is derived from their ability to coordinate the agents to arrive at the right equilibrium.

We provide new evidence that the inferior returns to growth stocks relative to value stocks are the result of expectational errors about future earnings performance. Our evidence demonstrates that growth stocks exhibit an asymmetric response to earnings surprises. We show that while growth stocks are at least as likely to announce negative earnings surprises as positive earnings surprises, they exhibit an asymmetrically large negative price response to negative earnings surprises. After controlling for this asymmetric price response, we find no remaining evidence of a return differential between growth and value stocks. We conclude that the inferior return to growth stocks is attributable to overoptimistic expectational errors that are corrected through subsequent negative earnings surprises.

This paper examines the relation between state contract law and the use of accounting information in debt contracts. Contract theory suggests that balance sheet based covenants resolve debtholder-shareholder conflicts ex ante, whereas income statement based covenants serve as trip- wires that trigger the switch of control rights ex post. It is more difficult for lenders to exert their control rights ex post if the contract law is more favorable to debtors (i.e., the law is pro-debtor), suggesting that balance sheet based covenants are more efficient in these jurisdictions. We therefore test and find evidence that lenders using pro-debtor (pro-lender) law are more (less) likely to rely on balance sheet based covenants. We measure reliance using both the weight of balance sheet covenants relative to income statement covenants and the covenant strictness. Our analysis further shows that contracts with performance pricing grids are less likely to include interest increasing grids when the law is more favorable to debtors. The results provide initial evidence that contract law is an important determinant for the design of debt contracts.

To investigate how the possibility of earnings manipulation affects managerial compensation contracts, we study a two-period agency setting in which a firm’s manager can engage in window-dressing activities to manipulate reported accounting earnings. Earnings manipulation boosts the reported earnings in one period at the expense of the reported earnings in the other period. We find that the optimal pay-performance sensitivity may increase and expected managerial compensation may decrease as the manager’s cost of earnings management decreases. When the manager is privately informed about the payoff of an investment project to the firm, we identify plausible conditions under which prohibiting earnings management can result in a less efficient investment decision for the firm and more rents for the manager.

The Gong, Young, and Zhou (GYZ) (Gong et al. 2023) paper examines potential earnings management by movie studio companies. Using a large sample of 3094 US-produced English-language movies released between 1997 and 2019, they find that movie studio companies, when faced with a below expected US box office revenue yield from their movies in a specific quarter, move up the release dates of movies with high expected revenues. This “move-up” release is an example of what the accounting research literature calls real earnings management. This commentary on GYZ (Gong et al. 2023) adds more structure to the decision-making context in which movie release dates are set, placing greater emphasis on the role of movie screening companies, which have the final say on the release dates for the movies they show on their screens. It also highlights the rich information setting that exists in the motion picture industry, which can be further exploited to probe the reliability of the earnings management findings reported by GYZ (Gong et al. 2023). This rich information includes security analyst reports and screen days available to quarter-end for each movie released. The commentary has relevance for other research in specific industries where the institutional domain has the potential to provide insight into real earnings management.

This paper examines the effect of languages on corporate tax avoidance. We hypothesize and find that managers of firms in countries with languages that grammatically distinguish the future from the present (languages with a strong future time reference or FTR) perceive the potential future tax repayments and penalties to be more distant and therefore engage in more tax avoidance. Further tests exploiting the variation in language FTR within Switzerland and Belgium, which have different official languages in different regions but a single tax system, suggest that our findings are not driven by country-level differences in the tax system. We also provide evidence that U.S. firms with CEOs born in countries with strong FTR languages avoid more taxes than those with CEOs born in weak FTR countries, indicating that it is the CEO’s native tongue that affects tax avoidance. Collectively, our findings highlight the importance of social norms in understanding corporate tax strategies.

We examine whether initial public offering (IPO) firms exercise discretion over an individual accrual account on the balance sheet—the allowance for uncollectible accounts—and an individual accrual account on the income statement—bad debt expense. Our research design exploits a unique disclosure requirement related to these accounts (i.e., the ex post disclosure of write-offs of uncollectible accounts), which enables us to develop refined expectation models. We provide evidence that IPO firms have conservative, not aggressive, allowances in the annual periods adjacent to their stock offerings. In fact, the average IPO firm has an allowance that is over four-times leading write-offs. We also provide evidence that IPO firms record larger, not smaller, bad debt expense and are less likely to record income-increasing bad debt expense than matched non-IPO firms. These results challenge the view that IPO firms understate receivables-related accrual accounts.

Nghiên cứu này đề cập đến độ thiên lệch đồng thời trong các dạng tuyến tính từng phần của mối quan hệ giữa thu nhập và lợi tức. Chúng tôi xác định một hệ thống phương trình đồng thời được xác định quá mức bao gồm cả các quy định về tính kịp thời của thu nhập bất đối xứng và sự kiên trì bất đối xứng của thu nhập, và thực hiện phương pháp bình phương tối thiểu hai giai đoạn cho hệ thống tuyến tính từng phần này. Việc ước lượng một hệ thống có cấu trúc tuyến tính từng phần trong các biến nội sinh gặp phải nhiều vấn đề chưa từng có trong tài liệu kế toán. Kết quả cung cấp bằng chứng rằng quy định về tính kịp thời bất đối xứng bị ảnh hưởng đặc biệt bởi độ thiên lệch đồng thời và việc không điều chỉnh cho độ thiên lệch đồng thời dẫn đến các ước lượng hệ số có thể làm giảm mức độ tính kịp thời bất đối xứng của thu nhập. Hơn nữa, các suy diễn về cách chủ nghĩa bảo thủ có điều kiện đã phát triển theo thời gian rất nhạy cảm với việc có sử dụng các hệ số OLS hoặc 2SLS làm cơ sở so sánh hay không.