Research Lab

This paper explores how academics and regulators might approach the task of developing a conceptual framework for financial accounting policy. It does so against a backdrop of a short history of accounting thought that lays out approaches that have been taken in the past and evaluates their impact. With the lessons from history recognized, the paper then offers a number of suggestions to be considered as we go forward. Some of these suggestions come from research. Some come from taking a utilitarian perspective on accounting.

This study examines the accuracy of relative valuation methods in the U.S. insurance industry, using price as a proxy for intrinsic value. The approaches differ in terms of the fundamentals used, the adjustments made to the fundamentals, the use of conditioning variables, and the selection of comparables. Selected findings include the following. First, over the last decade, book value multiples have performed significantly better than earnings multiples in valuing insurance companies.

It is standard in economics to assume that assets are normal goods and demand is downward sloping in price. This view has its theoretical foundation in the classic single period model of Arrow with one risky asset and one risk free asset, where both are assumed to be held long, and preferences exhibit decreasing absolute risk aversion and increasing relative risk aversion.

The financial crisis that erupted in late 2007 has resurfaced debates about the role of accounting and external financial reporting by financial institutions in helping detect or mask systemic risks and in exacerbating or mitigating such risks. The debate has largely focused on the role of fair value accounting, securitization and special purpose entities, off-balance sheet reporting and pro-cyclicality. We consider these and other issues using a single company's published accounts.

We study a dynamic-contracting problem involving risk sharing between two parties — the Proposer and the Responder — who invest in a risky asset until an exogenous but random termination time. In any time period they must invest all their wealth in the risky asset, but they can share the underlying investment and termination risk. When the project ends they consume their final accumulated wealth. The Proposer and the Responder have constant relative risk aversion R and r respectively, with R > r > 0.

We provide insights into earnings quality from a survey of 169 CFOs of public companies and in-depth interviews of 12 CFOs and two standard setters.

The SEC is currently considering a rulemaking petition requesting that the Commission shorten the ten-day window, established by Section 13(d) of the Williams Act, within which investors must publicly disclose purchases of a 5% or greater stake in public companies. In this Article, we provide the first systematic empirical evidence on these disclosures and find that several of the petition's factual premises are not consistent with the evidence.

This paper explores the links between firms' voluntary disclosures and their cost of capital. Existing studies investigate the relation between mandatory disclosures and cost of capital, and find no cross-sectional effect but a negative association in time-series. In this paper, I find that when disclosure is voluntary firms that disclose their information have a lower cost of capital than firms that do not disclose, but the association between voluntary disclosure and cost of capital for disclosing and non-disclosing firms is positive in aggregate.