We decompose broad-based measures of accruals into firm-specific and related-firm components. We find that the negative relation between accruals and future firm performance is almost entirely attributable to the firm-specific component. Standard risk-based explanations are hard to reconcile with this fact. To the extent expected returns have a common component spanning related firms, a risk-based explanation would suggest a stronger negative relation between accruals and future firm performance when related firms are also growing. Instead, the attenuation we document is more likely attributable to suboptimal investment decisions, which the stock market and analysts do not incorporate in a timely manner.
We study how securities analysts influence managers’ use of different types of earnings management. To isolate causality, we employ a quasi-experiment that exploits exogenous reductions in analyst following resulting from brokerage house mergers. We find that managers respond to the coverage loss by decreasing real earnings management while increasing accrual manipulation. These effects are significantly stronger among firms with less coverage and for firms close to the zero-earnings threshold. Our causal evidence suggests that managers use real earnings management to enhance short-term performance in response to analyst pressure, effects that are not uncovered when focusing solely on accrual-based methods.
This paper empirically examines how suspense and surprise affect the demand for entertainment. We use a tennis tournament, the Wimbledon Championships, as a natural laboratory. This setting allows us to both operationalize suspense and surprise by using the audience's beliefs regarding the outcome of the match and observe the demand for live entertainment using TV audience figures. Our match fixed effects estimates of 8563 minute-by-minute observations from 80 men's singles matches between 2009 and 2014 show that both suspense and surprise are drivers of media entertainment demand. In general, surprise seems to be more important in this regard than suspense, and both factors matter more during a match's later moments. We discuss important implications for the design of entertainment content to maximize entertainment demand.
Bonus taxes have been implemented to prevent managers from taking excessive risks. This paper analyzes the effects of taxing executives’ bonuses in a principal–agent model. Our model shows that, contrary to its intention, the introduction of a bonus tax intensifies managers’ risk-taking behavior and decreases their effort. The principal responds to a bonus tax by offering the manager a higher fixed salary but a lower incentive-based component (bonus rate).
