The nineteenth century saw the standardization and rapid spread of the modern business corporation around the world. Yet those early corporations differed from their contemporary counterparts in important ways. Most obviously, they commonly deviated from the one-share-one-vote rule that is...

Grossman and Hart’s prominent 1986 article on “The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration” focuses, as its title suggests, on which of a firm’s input suppliers are, or are not, efficiently owned by the firm. This brief essay, prepared for a...

Trading in a secondary stock market not only redistributes wealth among investors but also generates information that guides subsequent investment. We provide a positive theory of disclosure that reflects both functions of a secondary market. By making private information public, disclosure...

This study finds that the agency problems of companies with high free cash flow (FCF) and low growth opportunities induce auditors of companies in the United States to raise audit fees to compensate for the additional effort. We also find that high FCF companies with high growth prospects have...

The report explains why accounting is not a purely mechanical activity, but is affected by the incentives of those involved in the accounting process and by surrounding institutions, which help shape incentives and facilitate and constrain managers' actions. It looks at the principal factors...

This article investigates the development of accountability and fiduciary loyalty as an institutional response to information asymmetries in agency relations, especially in firm-like settings. Lord Eldon articulated the crucial role of information asymmetries in opportunistic behaviour in early...

Financial reports should provide useful information to shareholders and creditors. Directors, however, normally owe fiduciary duties to equity holders, not creditors. We examine whether this slant in fiduciary duties affects the likelihood that firms will use financial engineering to circumvent...

Financial reports should provide useful information to shareholders and creditors. Directors, however, normally owe fiduciary duties to equity holders, not creditors. We examine whether this slant in fiduciary duties affects the likelihood that firms will use financial engineering to circumvent...

Khan and Watts (2009) develop a firm-year measure of conditional conservatism, labeled C_Score, that builds on the Basu (1997) asymmetric timeliness (AT) measure. However, recent research documents an asymmetric relation between lagged earnings and current returns, indicative of bias in the Basu...

Using hand collected Level 3 data, we find that banks near key capital ratios report higher unrealized gains in Level 3 assets, consistent with managers using unrealized gains in earnings from Level 3 valuations to boost capital ratios. Additionally, we document an incremental pricing discount...