In an extended Capital Asset Pricing Model setting, I examine how the quality of accounting standards affects real investment and welfare through its impact on investment hurdle rates. In this model, cash flow uncertainty arises from two fundamental sources relating, respectively, to economic...

We examine the relation between layoffs and stockholders' wealth, and corporate performance subsequent to layoffs. We find that layoffs are preceded by a period of poor stock market and earnings performance, and are followed by significant improvements in both. On average, layoff announcements...

This study examines the relevance of modified audit opinions (MAO) in private debt contracting. We use the auditor's explanatory language to partition MAOs into Inconsistency opinions, resulting from an accounting change or a restatement; and Inadequacy opinions, arising from a material...

Employing a basic model of an economy comprising both the real and financial sectors, I show that the primitive risk measure for real investment decisions is earnings beta — defined as the (normalized) covariance between firm profitability (return on investment) and the aggregate profitability...