Optimal audit standards become stricter as financing constraints tighten, because stricter audits raise the income firms can credibly promise investors, and the added financing is worth most where underinvestment is most severe.
Naming clients in PCAOB inspection reports can improve audit compliance but may reduce welfare by encouraging conservatism that blocks profitable investment.
Lower costs for traders to acquire information about firms can reduce corporate investment and total surplus by increasing the trading losses borne by investors who provide firms’ capital.
Financing constraints can lead to too little, not too much, founder replacement, because founders who must accept smaller exit packages to raise capital manipulate the performance metrics investors use to decide whether to replace them.
Journal of Accounting and Economics · Forthcoming
Conservative accounting standards can lower financing costs by reducing the number of firms seeking capital, while liberal standards can raise investors’ returns by expanding demand for funding.
Journal of Accounting Research · 64 (2026), 1867–1903
Requiring precise climate-risk measurement can reduce green transitions, because when measurement is vague, impact investors cannot tell which firms would go green anyway, so they subsidize more broadly and more firms make the transition.
Journal of Accounting Research · 62 (2024), 981–1005
As a CEO’s confidence in their vision grows, the board shifts from advising to monitoring to rubberstamping, because imposing an alternative strategy can undermine the CEO’s motivation to implement it.
Journal of Accounting and Economics · 77 (2024), 101630
Managers who want to keep their projects alive work harder to overturn false alarms than to expose problems hidden by optimistic reports, so the errors conservative accounting makes are the ones managers are eager to correct.
The Accounting Review · 98 (2023), 273–288
Managers who borrow can commit to prudent investment by adopting a reporting system that sends too many or too few early warnings, because the resulting mistaken project decisions hurt them most when they take excessive risks.
Journal of Accounting and Economics · 74 (2022), 101494
Firms with strong long-term prospects can lower financing costs by adopting a reporting system that tends to overstate performance, a signal weaker firms will not copy because the inefficient expansions it triggers cost them more.
Journal of Accounting Research · 60 (2022), 353–371
Optimistic managers may choose tighter debt covenants, even though lenders will then liquidate more often, because letting lenders recover more through liquidation lowers the repayment owed if the project succeeds, an outcome optimists overrate.
The Accounting Review · 97 (2022), 293–314
A debt contract with a covenant can lead to fewer liquidations of poor projects than one without, because managers misreport bad news to retain control and then resist renegotiation to avoid exposing their misreporting.
Management Science · 68 (2022), 2349–2362
Greater litigation risk can lead firms to choose less conservative reporting systems when auditing is inexpensive, because auditors facing more liability check reports more carefully, reducing the need for conservatism as a safeguard against overstatement.
Journal of Accounting and Economics · 70 (2020), 101319
Conservative accounting can encourage innovation by making favorable earnings reports more reliable, allowing boards to reward managers more strongly for developing new ideas while discouraging them from investing in projects with poor prospects.
Journal of Accounting and Economics · 65 (2018), 221–236
Stronger enforcement can call for stricter accounting standards when penalties vary little with violation size, but for looser standards when penalties are sensitive to it.
Journal of Accounting Research · 55 (2017), 995–1016
Firms may give employees more resources and freedom than the direct returns justify, because support lets talented employees stand out, so promotions can rely on performance rather than costly monitoring, strengthening motivation and lowering incentive pay.
Journal of Accounting and Economics · 63 (2017), 253–261
Boards may be more willing to hire outside CEOs when reported performance is harder to manipulate, because reliable reports help them identify and replace unsuccessful hires, limiting the greater downside risk of appointing an outsider.
Management Science · 63 (2017), 424–437
Stronger reporting oversight can improve investment decisions yet increase manipulation: boards with better oversight adopt more conservative accounting, which gives managers seeking approval for expansions a stronger reason to inflate reports.
Journal of Economics & Management Strategy · 24 (2015), 275–305
Stock options can encourage CEOs to search for innovative ideas, and the optimal pay package adds restricted stock when CEOs are prone to excessive risk-taking or severance pay when fear of dismissal makes them too cautious.
The Accounting Review · 89 (2014), 2233–2259
Stock options can encourage CEOs to manipulate interim reports to keep risky projects alive, even when their compensation depends entirely on long-term firm performance.
Foundations and Trends in Accounting · 8 (2014), 1–73
This review synthesizes research showing that, because boards must evaluate and possibly replace CEOs, practices that look like governance failures, such as limited monitoring, severance pay, or short-term investment, can be optimal.
Journal of Accounting and Economics · 53 (2012), 577–591
Higher damages for misreporting can increase misreporting, because investors who expect compensation if the firm fails demand a smaller stake, so optimistic entrepreneurs, who consider failure unlikely, gain more from hiding bad news to secure funding.
Journal of Financial Economics · 106 (2012), 513–526
Longer option vesting periods, often proposed as a cure for short-termism, can instead encourage excessive short-term investment, because CEOs chase early successes to avoid being fired and forfeiting their unvested options.
Contemporary Accounting Research · 28 (2011), 1467–1483
When boards tailor CEO pay to the projects the CEO has found, a less independent board, which pays more generously, can motivate a more thorough search for alternatives to a pet project, albeit at higher cost to shareholders.
Management Science · 56 (2010), 938–948
Greater director liability can lead boards to monitor less, not more, because when monitoring is costly, directors limit their exposure mainly by cutting performance-based CEO pay, which weakens the CEO’s incentive to manipulate earnings.
RAND Journal of Economics · 41 (2010), 118–138
Allowing CEOs to time option exercises based on inside information can improve decisions to abandon weak projects, because a CEO who has cashed out after bad news no longer loses option value when the project is dropped.
The Accounting Review · 85 (2010), 261–285
Stronger auditor liability can reduce client rejections because better audits make clients willing to pay higher fees that encourage careful evaluation, but very strict liability can make litigation expenses outweigh these benefits.
The Accounting Review · 84 (2009), 869–891
Assigning compensation and audit responsibilities to separate board committees can raise both stock-based CEO pay and board oversight, because a compensation committee that does not bear monitoring costs grants more stock-based pay, which prompts the audit committee to monitor more.
Journal of Accounting Research · 46 (2008), 137–171
More independent boards are more willing to dismiss CEOs but must offer larger severance payments to induce CEOs to reveal unfavorable information about their own ability, which in turn calls for larger stock option grants to offset weaker effort incentives.
Journal of Economic Behavior & Organization · 65 (2008), 625–635
Requiring managers to spend costly, even unproductive, effort lobbying for projects can improve capital allocation, because managers will bear that cost only for projects they expect to succeed and will investigate prospects first.
Journal of Economics & Management Strategy · 15 (2006), 707–733
An informative measure of a manager’s implementation effort can be useless for incentive pay, because when the manager must also evaluate the project, the compensation risk that motivates careful evaluation may already ensure diligent implementation.
Journal of Institutional and Theoretical Economics · 162 (2006), 412–423
When pay depends on an imperfect performance measure, employees can spend too much effort learning how to game it, so firms may prefer weaker incentives that discourage that learning, not just the gaming itself.