While it is generally maintained that earnings management can occur to inform as well as to mislead, evidence that earnings management informs has been scarce, and evidence that credibility increases with signal costliness inexistent. We provide evidence that firms use discretion over financial...

While increases in earnings are common, we identify a setting in which they signal a separating equilibrium. Firms that “defy gravity' (DG) by reporting increases in earnings despite experiencing a decline in sales from continuing operations, signal their viability as a going- concern, and...

We examine the economic determinants of short-sale supply, and its consequences for future stock returns. Lendable supply increases with expected borrowing costs and decreases with financial statement constructs that indicate overvaluation. Although rising loan fees help ease supply, we find...

This paper examines the impact of the accounting flexibility offered by IFRS 1 during the 2005 mandatory adoption of IFRS in the European Union. Same year reconciliations between local GAAP and IFRS are used on a sample of 1,635 European firms to determine the nature and extent of their use in...

We use a unique and confidential database of 15,392 tax audits performed by the Croatian Tax Administration during the 2002-2006 period to examine the impact of task complexity, auditor experience, and auditor effort on audit performance. We provide external validation to prior experimental and...