Tue, 27 Jul 2010 08:00:07 -0700

Imagining The Unimaginable Risks Of Being A Director Or Officer
The Great Recession is resulting in increasing governmental regulation piled on top of an already vast array of corporate legal responsibilities. At the same time, Department of Justice charging standards have evolved to the point that corporations that in good faith seek to comply with Sarbanes-Oxley and similar duties no longer get indicted. Instead, individual directors and officers do. The internal corporate investigation is the centerpiece of the process. Typically, that investigation seems directed initially at lower-level corporate personnel, not directors and officers.
Mon, 26 Jul 2010 09:28:19 -0700

Lease Classification Of Aircraft Leasing
Aircraft leasing represents a significant portion of the financial statements of airline firms. Accounting treatment of lease transactions is becoming more complicated as firms attempt to achieve off-balance-sheet outcomes vis a vis Special Purpose Entities (SPC). Cross-border leasing involving SPCs in particular raises a variety issues stemming from international differences between accounting regimes. This paper utilizes an example of cross-border leasing between Korean Air and its Irish subsidiary to illustrate the complexity related to lease classification. It begins by exploring the industry background, the concept of leasing, traditional lease criteria and current issues/trends in accounting. Next, relevant lease accounting rules are reviewed and compared to international and US GAAP.
Tue, 20 Jul 2010 07:12:18 -0700

Sarbanes-Oxley As Quack Corporate Governance: How Wise Is The Received Wisdom?
Recent paper by Romano of Yale, Clark of Harvard, and Ribstein of Illinois have all surveyed the empirical academic literature and found Sarbanes-Oxley (SOX) wanting, Romano terming four of its key provisions "Quack corporate governance." Using a slightly wider lens and considering an avalanche of more recent work, this paper demonstrates that the current dominant view that SOX is wholly unsupported by the academic literature is simply wrong. Rather, that literature gives substantial reason to view some of SOX's most important provisions with a measure of hope.
Tue, 20 Jul 2010 06:51:25 -0700

Employee Stock Option Fair-Value Estimates: Do Managerial Discretion And Incentives Explain Accuracy?
The author examines the determinants of managers' use of discretion over Employee Stock Option (ESO) valuation-model inputs that determine ESO fair values. They also explore the consequences of such discretion. Firms exercise considerable discretion over all model inputs and this discretion results in material differences in ESO fair-value estimates. Contrary to conventional wisdom, they find that a large proportion of firms exercise value-increasing discretion. Importantly, they find that the use of discretion improves predictive accuracy for about half of our sample firms. Moreover, they find that both opportunistic and informational managerial incentives together explain the accuracy firms' ESO fair value estimates.
Tue, 20 Jul 2010 06:42:23 -0700

Interpreting The Book-Tax Income Gap As Earnings Management Or Tax Sheltering
The measured book-tax gap is often used as a surrogate for one of the behaviors that influences the gap - earnings management or tax sheltering - without adjusting for the effect of other influences - GAAP changes, tax law changes, and macroeconomic conditions. This paper provides evidence on the quality of the unadjusted book-tax income gap as a proxy for earnings management or tax sheltering by adjusting for the three measurable factors: GAAP changes, macroeconomic conditions, and earnings management.
Mon, 19 Jul 2010 12:41:23 -0700

The Role Of Auditing In Investor Protection
Protection of outside investors depends on the detection and punishment of resource diversion by managers and controlling shareholders. The authors focus on the role played in investor protection by self-interested auditors operating in a competitive audit market. In our setting, auditors represent the mechanism whereby detection of diversion occurs. They show that markets with relatively greater auditor penalties for audit failures and greater insider penalties for detected resource diversion have larger total investment levels, a higher proportion of the firm held by outsiders, higher audit effort, higher audit fees, and higher expected payoffs for both auditors and insiders.
Mon, 19 Jul 2010 12:30:11 -0700

Strategic Disclosure Of Risky Prospects: A Laboratory Experiment
Evidence from an interactive experiment indicates that the tendency of users to anchor on one-sided disclosures of risk (i.e., disclosing upside potential or downside risk, but not both) is robust to whether disclosures are determined randomly or chosen strategically by opportunistic agents with known preferences for higher valuations. This paper therefore addresses qualifications in prior research about the generalizability of cognitive disclosure phenomena to a strategic disclosure environment.