Economics of Accounting Earnings

217 Pages Posted: 3 Dec 2019 Last revised: 19 Dec 2019

See all articles by Richard M. Frankel

Richard M. Frankel

Washington University in Saint Louis - Olin Business School

S.P. Kothari

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Luo Zuo

Cornell University - Samuel Curtis Johnson Graduate School of Management

Date Written: December 18, 2019

Abstract

This monograph is not a review of the empirical accounting literature. This monograph tells a story and relates it to salient empirical phenomena. Why does accounting exist? Our answer is that financial accounting helps firms function efficiently. That efficiency is manifested in many ways, and it is contextual (e.g., investment decisions and capital allocation, corporate governance, managers’ performance assessment, and contracts among various stakeholders). We often use shareholder value as the measure of efficiency, though we discuss regulation, social and contract efficiency.

Keywords: imperfect and incomplete markets, information asymmetry, incentive conflicts, shareholder wealth, earning-return relation, market efficiency

JEL Classification: D82, D86, G10, G12, G14, G30, K22, L21, M41, M42

Suggested Citation

Frankel, Richard M. and Kothari, S.P. and Zuo, Luo, Economics of Accounting Earnings (December 18, 2019). Available at SSRN: https://ssrn.com/abstract=3435218 or http://dx.doi.org/10.2139/ssrn.3435218

Richard M. Frankel

Washington University in Saint Louis - Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

S.P. Kothari (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E52-325
Cambridge, MA 02142
United States
617-253-0994 (Phone)
617-253-0603 (Fax)

Luo Zuo

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

349 Sage Hall
Ithaca, NY 14853
United States
607-255-4002 (Phone)

HOME PAGE: http://www.johnson.cornell.edu/faculty-research/faculty/lz352/

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