Performance, growth and earnings management

We study the relationship between the amount of managed earnings and firms' earnings performance and expected growth in a reporting model, where managers manipulate earnings to influence the valuation of firms' equity while bearing a cost that is increasing and convex in the amount of managed earnings. In the unique revealing equilibrium to the model, firms with higher performance and growth over-report earnings by a larger amount because price responsiveness increases with earnings performance and growth. And earnings quality, defined as the proportion of true economic earnings in total reported earnings, increases with earnings performance but decreases with earnings growth. We conduct empirical tests on a large sample and a restatement sample using different proxies for earnings management. Results from the large sample tests support our predictions while results from the restatement sample tests are mixed. Our study provides an alternative explanation to the positive relationship between discretionary accruals estimated from the Jones model and firms' performance and growth.Business, FinanceCPCI-SSH(ISSHP)SSCI1

A VARMA Test on the Gibson Paradox.

We applied the VARMA test to examine the dynamic relation between prices and interest rates. The dynamic relation, which is important to characterize the nature of the Gibson paradox, provides economists new insight in discriminating against competing theories. In light of our empirical findings, all theories in the literature lose their persuasiveness. We found some evidence of unidirectional relation from prices to interest rates, but we found no evidence of unidirectional relation from interest rates to prices. Hence, the business cycle explanations advanced by Wicksell (1907), Keynes (1930), Lee and Petruzzi (1986), and Barsky and Summers (1988) are especially in jeopardy. A century and a half after its birth, this paradox is more puzzling than ever. Copyright 1990 by MIT Press.

Optimal Pricing Strategy in Marketing Research Consulting.

This paper studies the optimal pricing scheme for a monopolistic marketing research consultant who sells high-cost proprietary marketing information to her oligopolistic clients in the manufacturing industry. In designing an optimal pricing strategy, the consultant needs to fully consider the behavior of her clients, the behavior of the existing and potential competitors to her clients, and the behavior of her clients' customers. The authors show how the environment uncertainty, the capability of clients' internal research department, and the number of potential clients can affect the optimal pricing scheme. Copyright 1994 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Stock Price Response to Accounting Information in Oligopoly.

In this article, the authors explore the linkages between the Ball-Brown effect and the information transfer effect in oligopoly. Using the data from the Wall Street Journal's "Digest of Earnings Report" column, they analyze how the stock market reacts to the subearnings information. The authors show that an unexpected increase in sales is good news to the disclosing firm as well as to its competitors. However, an unexpected increase in costs is bad news to the disclosing firm but good news to its competitors. The Ball-Brown effect can be viewed as a consequence of stock market reactions to subearnings disclosure. Copyright 1992 by University of Chicago Press.