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This paper investigates the effect of family ownership on corporate misconduct and its subsequent consequences. We argue that the reduced Type I agency conflicts (conflicts between managers and shareholders) in family firms may create an alignment effect, thereby curbing managerial misbehaviour. In contrast, the more severe Type II agency issues (conflicts between family owners and other shareholders) may induce an entrenchment effect, potentially fostering misconduct in these firms. Whether and how family ownership affects firm misconduct remains an empirical question. Through a research design that analyzes both types of agency conflict across various combinations of ownership and management control, our study of S&P 500 firms in the US suggests that family ownership tends to restrain firm misconduct. Specifically, family firms with externally hired CEOs effectively mitigate Type I agency problems and deter misconduct. Further analyses of misconduct consequences show that family ownership mitigates the negative effect of misconduct on firms' credit ratings, particularly in firms with outside‐hired CEOs. Moreover, family firms encounter less adverse market reactions in response to disclosures of misconduct penalties. [ABSTRACT FROM AUTHOR]

Whether discretionary disclosure of accounting estimates increases or decreases the decision usefulness of financial information is a fundamental issue in accounting and finance. Our paper speaks to this issue by examining the effect of discretionary disclosure of accounting estimates on the forecasting behaviour of financial analysts, who are sophisticated users of financial information and play a crucial role as an information intermediary in the capital markets. We find that discretionary disclosure of accounting estimates (made in the 10‐K management discussion and analysis and financial statement footnotes) reduces analyst forecast errors and analysts' tendency to round their annual earnings forecasts. These effects are more pronounced when analysts issue forecasts for companies with high accounting reporting complexity. Overall, the results suggest that discretionary disclosure of accounting estimates reduces information costs by providing relevant information for analysts' forecasting decisions. [ABSTRACT FROM AUTHOR]

Revenue is the closest proxy in financial statements for market size and dominance, factors that determine the survival and future profits of modern corporations. Hence, revenue may contain value-relevant information, incremental to information contained in earnings. We find that revenue is used as a performance metric in executive compensation contracts when it provides information on equity valuation beyond the information provided by earnings. We call this occurrence an alignment between revenues' contracting and the valuation roles. The alignment is higher for firms in newer industries, with investors who focus on revenue targets, with managers who provide revenue guidance, and with analysts who issue revenue forecasts. This alignment seems efficient because revenue is more informative of future profits when it carries higher weight in executive compensation contracts. We conclude that modern corporations increasingly incentivize managers to create new markets and defend existing market shares, in addition to maximizing current profits. JEL Classifications: J3; L2; M41. [ABSTRACT FROM AUTHOR]

We examine the role of cash flow from operations (CFO) in chief executive officer (CEO) cash compensation. We predict that CFO is contract-relevant in the presence of earnings, and more so when (1) the quality of earnings relative to the quality of CFO as a measure of performance is low and (2) the need for CFO as a financing source is high. Our analysis is motivated principally by normative arguments and anecdotes from financial disclosures linking CFO to managerial effort and contracts, notwithstanding the traditional role of earnings in performance measurement. We find that the weight of CFO in the compensation model is positive and significant in the presence of earnings and stock returns. We also find that the relative quality of CFO compared with that of earnings has a positive (negative) impact on the weight of CFO (earnings). We further find that the relative weight of CFO is enhanced substantially when enterprise activities crucially depend on internally generated cash flow. These findings are unaltered when we include CEO age, firm size, and risk in the model and allow the coefficients to vary across industries. [ABSTRACT FROM AUTHOR]