A significant volume of long-term debt was refinanced by corporate America in the early 1990s. We argue that a majority of the refinancing was undertaken to improve the firm's cash flow performance. Firms replacing high-coupon long-term debt with low-coupon debt were able to increase their...

This paper examines whether credit rating agencies fully understand the implications of earnings and its components for future performance. After establishing that earnings are more relevant to the rating process than cash flows, we find that future rating changes can be predicted using current...

Auditors’ legal liability incentives to be conservative cause fourth quarter earnings to differ systematically from interim quarter earnings. We show that the frequencies and average magnitudes of losses, negative extraordinary items, negative special items and negative discontinued operations...