If the differences in accounting standards across countries reflect relatively stable institutional differences (e.g., auditing technology, the rule of law, etc.), why did several countries rapidly, albeit in a staggered manner, adopt IFRS over local standards in the 2003-2008 period? We test the hypothesis that perceived network benefits from the extant worldwide adoption of IFRS can explain part of countries' shift away from local accounting standards. That is, as more jurisdictions with economic ties to a given country adopt IFRS, perceived benefits from lowering transactions costs to foreign financial-statement users increase and contribute significantly towards the country's decision to adopt IFRS. We find that perceived network benefits increase the degree of IFRS harmonization among countries, and that smaller countries have a differentially higher response to these benefits. Further, economic ties with the European Union are a particularly important source of network effects. The results, robust to numerous alternative hypotheses and specifications, suggest IFRS adoption was self-reinforcing during the sample period, which, in turn, has implications for the consequences of IFRS adoption.

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In this paper, we rely on an exogenous shock to examine the impact of litigation risk on real earnings management (REM). We conduct difference-in-differences tests centered on an unanticipated court ruling that reduced litigation risk for firms headquartered in the Ninth Circuit. REM increases significantly following the ruling for Ninth Circuit firms relative to other firms, consistent with litigation risk deterring REM. Additional analyses reveal that REM rises more following the ruling when firms issue more optimistic disclosures. The evidence is consistent with litigation deterring REM by constraining managers' ability to issue optimistic and misleading disclosures that can conceal the myopic and opportunistic motives underlying REM. We further document that an increase in REM in response to a decline in litigation risk is more pronounced when managers have higher incentives to manipulate earnings and governance mechanisms are weaker.

I examine the impact of exogenous changes in stock prices on voluntary disclosure. Specifically, I investigate whether stock price declines prompt managers to voluntarily disclose firm-value-related information (management forecasts) that was withheld prior to the decline because it was unfavorable but became favorable at a lower stock price. Consistent with my predictions, I find that managers are more likely to release good-news forecasts following larger stock price declines but that there is no association between the likelihood of releasing good-news forecasts and the magnitude of stock price increases. Additional evidence indicates that the goodnews forecasts eventually conveyed by withholding firms after negative price shocks would likely have resulted in negative market reactions had they been released before the shocks. More generally, I provide evidence that managers withhold bad news and that exogenous stock price declines can induce its disclosure.

We propose that the value of the earnings reporting process as an information source lies in limiting delays in the release of bad news, either by inducing managers to disclose it voluntarily or by directly releasing the negative news that managers have incentives to withhold. We compare earnings informativeness in bad-news and good-news quarters. Using returns to measure news, we find, consistent with our prediction, that earnings informativeness relative to other sources is higher in bad-news quarters than in good-news quarters. Further, cross-sectional tests indicate that earnings differential informativeness in bad-news quarters is more pronounced when managers do not voluntarily disclose the news, information asymmetry is stronger, and managers are net sellers of stock. JEL Classifications: G3; M4; M40; M41; M48. Data Availability: Data are available from Compustat, CRSP, First Call, I/B/E/S, ISSM, TAQ, and Thompson Financial.

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There is significant disagreement about whether, when, and why IPO firms manage earnings. We precisely identify the timing and motives behind earnings management by IPO firms. The period around an IPO is characterized by two events: the IPO itself and the lockup expiration. Both the raising of capital at the IPO and the exit by pre-IPO shareholders at lockup expiration create incentives for firms to manage earnings. To disentangle the effect of these events, we examine quarterly, rather than annual, abnormal accruals. We find no evidence of income-increasing earnings management before the IPO. However, IPO firms exhibit positive abnormal accruals in the quarter before and the quarter of the lockup expiration. Positive abnormal accruals are concentrated in less scrutinized firms and firms with high selling by pre-IPO shareholders. Moreover, we find that these accruals subsequently reverse and that such reversals contribute to long-run IPO underperformance.

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