No abstract

To better understand how equity investors influence earnings quality, we compare the quality of accounting numbers produced by two types of public firms -those with publicly-traded equity and those with privately-held equity that are nonetheless considered public by virtue of having publicly-traded debt. We develop and test two hypotheses. The "demand" hypothesis holds that earnings of public equity firms are of higher quality than earnings of private equity firms due to the stronger demand by investors and creditors stemming from, among other concerns, higher litigation risk. The "opportunistic behavior" hypothesis posits that public equity firms have lower earnings quality than their private equity peers due to management intervention in the earnings process as a result of capital market considerations as well as their own equity-based compensation. We identify a number of attributes associated with the notion of earnings quality -persistence and estimation error of accruals, prevalence of earnings management, timeliness of loss versus gain recognition (conditional conservatism) and the extent of conservatism due to the use of asset-decreasing accounting principles (unconditional conservatism). The results indicate that, consistent with the "opportunistic behavior" hypothesis, private-equity firms have higher quality accruals and a lower propensity to manage income than public equity firms. However, in line with the "demand" hypothesis, public equity firms' financial reports are generally more conservative.

The biomagnification behavior of perfluorinated carboxylates (PFCAs) and perfluorinated sulfonates (PFSAs) was studied in terrestrial food webs consisting of lichen and plants, caribou, and wolves from two remote northern areas in Canada. Six PFCAs with eight to thirteen carbons and perfluorooctane sulfonate (PFOS) were regularly detected in all species. Lowest concentrations were found for vegetation (0.02-0.26 ng/g wet weight (ww) sum (Σ) PFCAs and 0.002-0.038 ng/g ww PFOS). Wolf liver showed highest concentrations (10-18 ng/g ww ΣPFCAs and 1.4-1.7 ng/g ww PFOS) followed by caribou liver (6-10 ng/g ww ΣPFCAs and 0.7-2.2 ng/g ww PFOS). Biomagnification factors were highly tissue and substance specific. Therefore, individual whole body concentrations were calculated and used for biomagnification and trophic magnification assessment. Trophic magnification factors (TMF) were highest for PFCAs with nine to eleven carbons (TMF = 2.2-2.9) as well as PFOS (TMF = 2.3-2.6) and all but perfluorooctanoate were significantly biomagnified. The relationship of PFCA and PFSA TMFs with the chain length in the terrestrial food chain was similar to previous studies for Arctic marine mammal food web, but the absolute values of TMFs were around two times lower for this study than in the marine environment. This study demonstrates that challenges remain for applying the TMF approach to studies of biomagnification of PFCAs and PFSAs, especially for terrestrial animals.

Marren, my former colleague at the M&A department of Citigroup Investment Banking, for his insightful feedback. I also want to thank my wife, Elissa Swift Katz, for her support during the process. I gratefully acknowledge financial support from Columbia Business School, the Deloitte Doctoral Fellowship, and Harvard Business School. All errors are mine.¸ The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

No abstract

To what degree are audit fees for U.S. firms with publicly traded equity higher than fees for otherwise similar firms with private equity? The answer is potentially important for evaluating regulatory regime design efficiency and for understanding audit demand and production economics. For U.S. firms with publicly traded debt, we hold constant the regulatory regime, including mandated issuer reporting and auditor responsibilities. We vary equity ownership and thus public securities market contextual factors, including any related public firm audit fees from increased audit effort to reduce audit litigation risk and/or pure litigation risk premium (litigation channel effects). In cross‐section, we find that audit fees for public equity firms are 20–22% higher than fees for otherwise similar private equity firms. Time‐series comparisons for firms that change ownership status yield larger percentage fee increases (decreases) for those going public (private). Results are consistent with litigation channel effects giving rise to substantial incremental audit fees for U.S. firms with public equity ownership.

No abstract

No abstract