integrity and finance theory

Michael C. Jensen, 2006. All Rights Reserved

Putting Integrity Into Finance Theory and Practice: A Positive Approach

Michael C. JensenJesse Isidor Straus Professor of Business, Emeritus,

Harvard Business SchoolManaging Director, Organizational Strategy Practice,

The Monitor Group

Some of the material here is based on: Michael C. Jensen., Kevin J. Murphy, and Eric G. Wruck, Remuneration: Where Weve Been, How We Got to Here, What are the

Problems, and How to Fix Them (July 12, 2004). HBS NOM Paper No 04-28, http://ssrn.com/abstract=561305, and

Werner Erhard, Michael C. Jensen, Steve Zaron, Integrity: A Positive Model that Includes Morality, Ethics, Legality, and Sincerity, unpublished paper in process, 2006

Robert Zicklin Center for Corporate IntegrityBaruch Co!ege, Zicklin School of Business

New York CityOctober 18, 2006


My Intention TodayBegin the development of a language to deal with the eects of integrity on corporate, market, personal and policy issues in nanceDistinguish between normative and positive aspects of integrity

Dene integrity (without reference to moral values)Discuss the eects of integrity on rm valueCreate an awareness of the importance of these issues for nance research, teaching and consultingStimulate interest in the power of this concept for logical/conceptual, empirical and policy issues in nance

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Michael C. Jensen, 2006. All Rights Reserved3

Integrity:Denition: Websters New World Dictionary.1. the quality or state of being complete; unbroken condition; wholeness; entirety2. the quality or state of being unimpaired; perfect condition; soundness 3. the quality or state of being of sound moral principle; uprightness, honesty, and sincerityI use the word in this work according to Denitions 1 and 2.

I do not use it to refer to a moral or ethical code or to denote right vs. wrong, or good vs. badThe way I use integrity it is not religion, it is not ethics, and is dened without reference to values


The Long-Neglected Scientic Role of Integrity in Finance

Finance scholars tend to avoid discussions or considerations of integrity because it occurs to them as normative

Whether you like integrity or not is a normative value judgement on your part

The eect of integrity or the lack of it on value, productivity, etc., is a positive proposition

My posited link between integrity and value is no more normative than the posited link between the net present value rule for investment decisions & corporate value.

Long run value creation requires integrity is a positive proposition that is testable and refutable

And the positive eects of integrity or its absence have too long been ignored in nanceIntegrity is a necessary but not sucient condition for long-run value maximization 4


Integrity: SummaryAn entity has integrity when it is whole and complete and stable

An object without integrity doesnt work Think of a wheel with missing spokes, it is not whole, complete and stable. It will become out-of-round, work less well and eventually stop working entirely

A system is in integrity when it is whole, complete and stable

That means nothing is hidden, no deception, no untruths, no violation of contracts or property rights, etc.If you refuse to play by the rules of the game you are in, integrity requires you to make this clear to all others.


Integrity: Summary (continued)A person is in integrity when he or she honors his or her word

Keeping ones word means you fulll your commitments and promises in full and on time.

If you always keep your commitments and promises you are not playing a big enough game in life.

Honoring your word means that you either:Keep your commitments and promises on time, orWhen you have failed to keep a commitment or promise you acknowledge that failure and clean up any mess you created for those who were counting on your commitments and promises.


Workability: The Bridge between Integrity and Value Creation

The greater an entity, person, or system is out of integrity, the less well it works

Put simply (and somewhat overstated) :

Without integrity nothing works

We use this as a heuristic

Put more carefully:

As integrity declines, workability declines, and as workability declines, value declines

Thus value maximization requires integrity7

A Picture of Integrity

What would your life be and what performance would be if it were true that:

You have done what you said you would do and you did it on timeYou have done what you know to do, you did it the way it was meant to be done, and you did it on timeYou have done what others would expect you to do , even if you never said you would do it, and you did it on time

8Source: Werner Erhard, Michael Jensen, Steve Zaron, A New Model of Integrity: Without Integrity Nothing Works, unpublished paper in process, 2006 Werner Erhard, Michael Jensen, Steve Zaron, Landmark Education, All Rights Reserved 2006

Picture of Integrity: ContinuedAnd whenever you realized that you were not going to do any of the foregoing, or not going to do it on time:

You have said so to everyone who might be impacted, and you did so just as soon as you realized that you wouldnt be doing it, or wouldnt be doing it on time, &If you were going to do it in the future you have said by when you would do it, orIf you wont be doing it at all, you have said so, andYou have dealt with the consequences of your not doing it on time, or not doing it at all, for all those who are impacted by your not doing it on time, or not doing it at all

In a sentence, you have done what you said you would do, or you have said you are not doing it; you have nothing hidden, you are truthful, forthright, straight and honest. And you have cleaned up the mess you have caused for those depending on your word.

9 Werner Erhard, Michael Jensen, Steve Zaron, Landmark Education, All Rights Reserved 2006Source: Werner Erhard, Michael Jensen, Steve Zaron, A New Model of Integrity: Without Integrity Nothing Works, unpublished paper in process, 2006


Some Areas in Finance Theory where Integrity Is Lacking

Recommedations to rms whose equity is overvaluedSell stock or bonds, acquire a less-overvalued rm for stock

Budget & Target-based compensation plansPay people according to how close they meet their targets

Managing relations with capital marketsFinancial reporting choices are strategic and must be made to manage what the street expects and to give the street what it expects

Somewhat Aside:Finance scholars have spent considerable eort investigating the productivity of common law vs civil law legal regimes and their aect on value creation, etc. The rst order question is the aect on poverty & development of the presence or absence of legal or other systems that encourage & support integrity--Not nearly enough attention paid to this.

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An Example of Finance Scholars Failure to Deal with Integrity

Long history of implicitly dening the duciary duty of managers to be to current shareholders only

Ignoring future shareholders and current and future bondholders

This leads to a system that is out of integrity, ie., it is not whole, complete and stableConsider the common recommendation for managers with an overvalued stock to issue new stock at the current high price (or make stock acquisitions) to benet current shareholders at the expense of future shareholders and (implicitly) to hide what they are doing

What happens when new shareholders discover they were taken?

The law does provides some obligation to future bond and shareholders through disclosure rules and regulations

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The Puzzling State of Low-Integrity Behavioral Norms in Capital Markets

Managers regularly choose to treat the rms relations with the capital markets as a game where reporting is not about creating long-term value but a strategy for managing and meeting analyst expectationsManaging Earnings, Income Smoothing and Manipulating nancial analysts are not whole, complete and stableAnd on the part of banks & investment banks:

Misleading investors with fraudulent investment recommendations designed to serve clients is not whole, complete and stable

Money managers allowing after hours market timing without notifying investors are out of integrity

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Financial Reporting:Dj Vu all over again(Yogi Berra)

Current situation in nancial reporting reminds me of the situation I faced in the mid -1970s as editor of the JFE

I was receiving a substantial ow of papers presenting evidence calling into question the then reigning theory of Ecient Markets. Referees systematically rejected the work

While each paper could be questioned in some ways it seemed there was too much evidence there calling the status quo into question. So I gathered many of the papers together, over-ruled the referees and published the somewhat controversial 1978 JFE special volume entitled Some Anomalous Evidence Regarding Market Eciency. A few years later Behavioral Finance began to ourish.

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Integrity problems with Target-Based Annual Bonuses

Create agency problems in pay designPaying People to Lie

Budget-based TargetsKinks, discontinuities, and non-linearitiesGaming and Value Destruction

Background Source of Integrity Problems in Financial Reporting



500

Base Salary +Threshold Bonus

Base Salary

Base Salary +Target Bonus

Base Salary +Bonus Cap

TargetPerformance

ThresholdPerformance

CashRemuneration

PerformanceMeasure

The "Incentive Zone"

Pay-PerformanceRelation

Typical Annual Bonus Plan


500

Base Salary

ActualBonus

CashRemuneration

PerformanceMeasure


ActualPerformance

BudgetTarget #1

BudgetTarget #2

Note: The actual bonus is now independent ofthe target or budget. Thus, budgets can be

used for planning and coordination

How Linear Pay-Performance Solves Paying People to Lie Problem

This literature began with Paul Healys pathbreaking work, The Eect of Bonus Schemes on Accounting Decisions. Journal of Accounting & Economics, 1985, pp. 85-107. See also Jensen, Paying People To Lie: The Truth about the Budgeting Process,http://ssrn.com/abstract=267651

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Fixing Bonuses and Options

Eliminate Bonuses based on performance targets from budget or prior-year performanceMeasure performance in $, and include a charge for capitalIncrease the incentive zone by eliminating caps (and oors?); linear plans are bestAvoid tinkering with the plan from year to yearAdd subjective component (but be careful)!Replace executive stock options with cost-of-capital indexed options to avoid rewarding managers for destroying value


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Agency Problems in Relations with Markets and Analysts

General lack of integrity in Relations with capital markets

Managing Earnings and Income Smoothing

Manipulating nancial analysts



An Apparent Non-Value Maximizing Equilibrium with Markets

Until recently it was generally considered part of every top managers job to manage earnings (and this still tends to be true, but somewhat less so)When managers make any decisions other than those that maximize value in order to aect reporting to the capital markets they are lying

And for too long we in nance have implicitly condoned or even collaborated in this lyingSpecically I am referring to managing earnings, income smoothing, etc.These issues are not merely one of deciding on a strategy--they involve integrity and their generally unappreciated, negative long-run value eects

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On the Importance of Language

Language aects the way the world occurs to people and therefore aects their behaviorWhen we use terms other than lying to describe earnings management behavior we inadvertently encourage the sacrice of integrity in corporations and in board rooms and elsewhere

I have observed (perfectly honest upstanding) people in their roles as board members condone manipulation of nancial reports because it never occurs to them it is lyingits just part of what it means to manageOur language eectively disables the normal social sanctions that would limit such behavior in board rooms and among managers as they openly discuss how to manage earnings20

For Corporate Governance: Put Integrity Back in the System

Boards have to take accountability for integrity of the entire corporate system:

Executive compensation--This starts with the budget/target-based comp. systems most companies useBackdating of Options

HP Corporate Spying--Violation of what others expected it not to do

Another good place to look is to eliminate the undiscussables in the board room

No system in which there are issues that are undiscussable can be whole, complete and stable. Therefore workability is sacriced.

21 Michael C. Jensen, 2006. All Rights Reserved

For the Governance of Financial Firms:Put Integrity Back in Your Operations

And this includes those professional rms who serve both the supply and demand side of nancial services

Law rms, Banks, Investment Banks, Brokerage Firms, Accounting Firms, Consulting Firms (especially compensation consultants)Other nancial service rms including Mutual Funds, Hedge Funds, Private Equity Funds, all of which have experienced damages from lack of integrity -- and more to come.



Why the general lack of integrity in relations with capital markets?

Many reasons, but a major one is that markets reward and punish managers in ways very similar to those budget based systems that pay people to lie--Under promise and Over deliver

And have similar undesirable outcomesMoreover, this lack of integrity reduces long-term value

How can it persist if it destroys long run value?

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How Markets Reward and Punish Managers for Meeting or Beating Consensus Forecasts

Source: Skinner & Sloan (2002)


500

Base Salary +Threshold Bonus

Base Salary

Base Salary +Target Bonus

Base Salary +Bonus Cap

TargetPerformance

ThresholdPerformance

CashRemuneration

PerformanceMeasure

The "Incentive Zone"


Typical Annual Bonus Plan

Source: Jensen, Paying People to Lie: The Truth About the Budgeting Process, http://ssrn.com/abstract=267651


Recent Evidence from Survey of 401 CFOs Reveals Fundamental Lack of Integrity

Graham, Harvey & Rajgopal survey (Economic Implications of Corp. Fin. Reporting http://ssrn.com/abstract=491627) of 401 CFOs nd: 78% of surveyed executives willing to knowingly

sacrice value to smooth earnings Recent scandals have made CFOs less willing to use

accounting manipulations to manage earnings, but Perfectly willing to change the real operating decisions

of the rm to destroy long run value to support short run earnings targets


Aggregate Evidence on the Manipulation of Earnings

Source: DeGorge, Patel and Zeckhauser (1999)


Collusion Between Analysts and Firms?

Hutton (2004) study of rm audits of analysts spreadsheet earnings models result in the following:

Of 421 rms responding to NIRI 2001 survey, 85.5% reviewed analysts models (= guidance rms)

Those analysts showed more accurate forecasts in the sense of lower mean squared errors

But, forecasts become systematically downward biased therefore yielding systematic (+) earnings surprises

Analysts of the no-guidance rms walk down their estimated earnings in response to negative earnings surprises (47% with 3 to 4 quarters with () earnings news) during the year.

However, analysts of the guidance rms walk down their earnings estimates even though 49% of the rms have 3 to 4 quarters of positive earnings news. Gives management a year end boost and indicates beginning of year bias

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More Evidence on the problems

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1985

1985

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1987

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1989

1991

1991

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1993

1995

1995

1997

1997

YearSource: Matsumoto (2002)

Percentage of Firms Meeting or Beating Analyst Forecasts


The Managing Earnings Game Seems To Have Emerged Strongly in Mid 1990s

Bartov, Givoly and Hayn (2002) nd:Proportion of earnings surprises at end of quarter

(-) fall from 48% to 31 % from 1983-93 to 1994-97 (+) increase from 40% to 50% (0) increase from 12% to 19%

Upward bias in 1 quarter ahead forecast has increased3% premium return for Meeting or Beating Analyst forecast at end of quarterSmall penalty for neg. revisions of forecast during qtr.How did analysts miss Microsofts earnings for 47 quarters?



The Peculiar Equilibrium between Analysts and Firms

Analysts long-run forecasts are systematically biased high These forecasts are then walked down so that at the realization date they are systematically lowInvestors appear to get taken (fooled) in both cases.Appears to be caused by analysts colluding with managers to allow them to meet or beat forecasts at the end of quarter.

And analysts who do not issue reports when they have bad things to say about the rm


The figure is based on aggregate 1984-2001 data from Richardson, Teoh, and Wysocki (2004) (provided by the authors), and shows the median difference of the forecast earnings per share and actual earnings per share, scaled by the prior-year share price The sample consists of all individual analyst forecasts for firms with data on both I/B/E/S and Compustat, and shows that the median consensus analysis forecast is initially positively biased, but that analysts walk down these forecasts each month. By the month of the actual earnings announcement, the median consensus forecast is negatively (and statistically significantly) biased; that is, the median company reports earnings slightly exceeding the year-end analyst forecast.

-11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0-0.001

0.000

0.001

0.002

0.003

0.004

0.005

0.006

0.007

0.008(F

orec

ast -

Actu

al Ea

rning

s)/Pr

ice

Months relative to actual earnings announcement

Analysts issue optimistic earnings forecasts and then walk down these estimates to a level firms can beat at the official earnings announcement


Walk Down Results from Mgmt. Pressure & Analyst Self Selection

Suppose Mgmt. imposes costs on analysts who are pessimistic or not optimistic enoughSuppose such analysts opt out of reporting their bad news on companies (w/o announcing why they opt out), or drop coverage entirely.

Evidence: Analysts seldom issue sell recommendations and often delay downgrades of a rm (Hong and Stein)

Resulting consensus forecast is then biased upward, and the process is out of integrity. (McNichols & Obrien (1997))Analysts long run EPS forecasts are systematically overoptimistic for growth rms, and . . . [this] is systematically related to the inferior stock price performance of growth rms Skinner & Sloan (2002). See also La Porta (1996) and Dechow and Sloan (1997)

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More Data Indicating Earnings Lies (continued)

Marquardt and Wiedman (2002) nd that managers use accruals to manage earnings either up or down in situations to t their own interests:

At times of equity issues rms use accruals to increase earnings and therefore stock priceIn Management buyout situations rms use accruals to decrease earnings and therefore stock price

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More Evidence that both Managers and Analysts Manipulate Earnings

The frequency of small quarterly prots is unusually large and the frequency of small losses is unusually small. And so too for small increases and decreases in prots. Burgstahler and Dichev (1997)Managers change real operating decisions such as reducing research and development or advertising expenditures to meet benchmarks. Dechow and Sloan, 1991; Bushee, 1998; Graham, Harvey, and Rajgopal, 2005; Rowchowdhury, 2004 Managers manipulate earnings upward around new equity oerings. Teoh, Welch & Wong (1998), and Rangan (1998)Systematically overly optimistic analyst long term growth forecasts around equity oerings are associated with the largest post IPO under performance. Rajan & Servaes (1997)

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More Data Indicating Earnings Mgmt. (Lies)

Myers, Myers and Skinner (2005) nd huge numbers of rms with consecutive strings of quarterly EPS non-decreases relative to the expected number.

They find evidence consistent with the idea that managers of sample firms take actions to (i) increase reported EPS when EPS would otherwise decline, and (ii) decrease reported EPS when EPS would otherwise increase by more than necessary to record an increase

Their evidence indicates this is done by strategically reporting special items, strategically timing stock repurchases, and exercising discretion over accounting for taxes to smooth changes in EPS

A total of 811 firms report earnings strings [non-decreases in quarterly EPS] of at least 20 quarters while the number of firms expected to be in the sample by chance, given the number of firms on Compustat and a probability of a non-decrease of .6, is only 2.

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Do Biased Growth Estimates by Lead Under-

writer Analysts Explain Equity Issue Puzzle? Dechow, Hutton, Sloan (1999): sell side analyst optimism and payments to their I-Bank employer by new issuers explains bias in LT earnings growth forecasts and post IPO under performance

Analysts employed by lead manager of oering make the most optimistic forecastsPositive relation between fees paid to the analysts employer and the analysts biasPost-oering under performance disappears when we control for over-optimism in earnings growth assessments at time of oering

Interesting fact: Institutional Investors evaluation criteria for All American Research Team omit accuracy of long-term growth forecastsBut Cowan, Groysberg & Healy (2003) nd underwriter analysts are less biased than analysts at non-underwriter rms--but still biased. (Downward for near term earnings forecasts and upward for long term forecasts.) They also nd analysts are more upward biased the longer they cover a rm.

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Communicate With ShortSellers

Audit and compensation committees should listen to short sellers for information on potential overvaluation

Generally considered an anathema by boards and managersShort Sellers can be biased, but we dont have to pay attention to themBut the board could learn interesting facts about the state of the company, its management and its competitive environment from those who have bet their own money on future value decline

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A pdf le of these slides is available from the Social Science Research Network at: http://ssrn.com/abstract=876312

Some, but not all, of the contents of this speech are covered in the following paper:

Werner Erhard, Michael Jensen, Steve Zaron, Integrity: A Positive Model that Includes Morality, Ethics, Legality, and Sincerity, in process., unpublished paper in process, 2006

And in the last half of the following paper:

Jensen, Michael C., Murphy, Kevin J. and Wruck, Eric G., Remuneration: Where Weve Been, How We Got to Here, What are the Problems, and How to Fix Them (July 12, 2004). HBS NOM Paper No 04-28; ECGI - Finance Working Paper No. 44/2004. http://ssrn.com/abstract=561305


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Credits and ReferencesId like to thank the members of the Barbados Group, especially Werner Erhard, Allan Scherr and Steve Zaron, for their contributions to my understanding of integrity and its importance.

Aggarwal, Rajesh K., Laurie Krigman, and Kent L. Womack. 2002. Strategic IP Underpricing, Information Momentum, and Lockup Expiration Selling. Journal of Financial Economics, V. 66, No. 1: pp 105-137. Agarawal, Vikas and Naik, Rarayan Y. Why is Santa So Kind To Hedge Funds? The December Return Puzzle! London Business School Working Paaper, Jan. 15, 2006. Bartov, Eli, Givoly, Dan and Hayn, Carla, The Rewards to Meeting or Beating Earnings Expectations (October 2000). Available at SSRN: http://ssrn.com/abstract=247435Bradshaw, Mark T., Scott A. Richardson, and Richard G. Sloan. 2005. The Relation between Corporate Financing Activities, Analysts Forecasts and Stock Returns. In Journal of Accounting and Economics Conference, 2004.Burgstahler, D., and I. Dichev. 1997. Earnings management to avoid earnings decreases and losses. Journal of Accounting & Economics 24 (December): 99-126.Bushee, Brian. 2004. Identifying and Attracting the Right Investors: Evidence on the Behavior of Institutional Investors. Journal of Applied Corporate Finance, V. 16, No. 4: Fall, pp. 28-35. Clement, Michael B. 1999. Analyst Forecast Accuracy: Do Ability, Resources, and Portfolio Complexity Matter? Journal of Accounting and Economics, V. 27, No. 3: pp 285-303. Cowen, Amanda, Groysberg, Boris and Healy, Paul M., Which Types of Analyst Firms Make More Optimistic Forecasts? (July 8, 2003). Harvard NOM Working Paper No. 03-46. http://ssrn.com/abstract=436686Dechow, Patricia M., Hutton, Amy P. and Sloan, Richard G., The Relation between Analysts Forecasts of Long-Term Earnings Growth and Stock Price Performance Following Equity Oerings (June 1999). http://ssrn.com/abstract=168488 DOI: 10.2139/ssrn.168488Degeorge, Franois, Jayendu Patel and Richard Zeckhauser. 1999. Earnings Management to Exceed Thresholds. Journal of Business, V. 72, No. 1: pp. 1-33. Fuller, Joseph and Jensen, Michael C., Just Say No To Wall Street . Journal of Applied Corporate Finance, Vol. 14, No. 4 (Winter 2002) pp. 41-46. http://ssrn.com/abstract=297156Graham, Harvey & Rajgopal survey Economic Implications of Corp. Fin. Reporting http://ssrn.com/abstract=491627Hayn, C. 1995. The information content of losses. Journal of Accounting & Economics 20 (September): 125-153.


Credits and References (continued 2)Hayward, Mathew L. A. and Warren Boeker. 1998. Power and Conicts of Interest in Professional Firms: Evidence from Investment Banking. Administrative Science Quarterly, V. 43, No. 1 (Mar., 1998): pp 1-22. Healy, Paul M. 1985. The Eect of Bonus Schemes on Accounting Decisions. Journal of Accounting & Economics, V. 7, No. 1-3: pp. 85-107. Healy, Paul M., and Krishna Palepu.Information Asymmetry, Corporate Disclosure and the Capital Markets: A Review of the Empirical Disclosure Literature (December 2000). JAE Rochester Conference April 2000. http://ssrn.com/abstract=258524Healy, P. M., and J. M. Wahlen. 1999. A review of the earnings management literature and its implications for standard setting. Accounting Horizons 13 (December): 365-383. Hong, Harrison and Jerey D. Kubik. 2003. Analyzing the Analysts: Career Concerns and Biased Earnings Forecasts. The Journal of Finance, V. 58, No. 1: pp 313-351. http://www.blackwell-synergy.com/loi/jo Hutton (1999) The Relation Between Analysts Earnings Forecasts of Long-Term Earnings Growth and Stock Price Performance Following Equity Oerings http://ssrn.com/abstract=168488Hutton, Amy, 2004. Determinants of Managerial Earnings Guidance Prior to Regulation Fair Disclosure and Bias in Analysts Earnings Forcasts, http://ssrn.com/abstract=567441Hutton, Amy. 2004. Beyond Financial Reporting An Integrated Approach to Disclosure. Journal of Applied Corporate Finance, V. 16, No. 4: Fall, pp. 8-16. Hutton, Amy, and James Weber, 2001, Progressive Insurance: Disclosure Strategy, Harvard Business School Case, 9-102-012, December 12.Jacob, John, Thomas Z. Lys, and Margaret A. Neale. 1999. Experience in Forecasting Performance of Security Analysts. Journal of Accounting and Economics, V. 28: pp 51-82. Jensen, Michael C., Paying People to Lie: The Truth About the Budgeting Process (Revised September, 2001). Harvard NOM Research Paper No. 01-03, and HBS Working Paper No. 01-072, European Financial Management, Vol. 9, pp. 379-406, September 2003 http://ssrn.com/abstract=267651Jensen, Michael C., Agency Costs of Overvalued Equity (March 2005). Harvard NOM Working Paper No. 04-26; ECGI - Finance Working Paper No. 39/2004, Financial Management, V. 34, No 1, Spring 2005. http://ssrn.com/abstract=480421Jensen, Michael C., The Agency Cost of Overvalued Equity and the Current State of Corporate Finance . Harvard NOM Working Paper No. 04-29, European Financial Management, Vol. 10, pp. 549-565, December 2004 http://ssrn.com/abstract=560961


Credits and References (continued 3)Kothari, S. P, Elena Loutskina, and Valeri Nikolaev. 2005. Agency Theory of Overvalued Equity as an Explanation for the Accrual Anomaly, (December 22, 2005). http://ssrn.com/abstract=871750Lin, Hsiou-wei and Maureen F. McNichols. 1998. Analyst Coverage of Initial Public Oerings: Stanford University. Unpublished manuscript.Lin, Hsiou-wei and Maureen F. McNichols. 1998. Underwriting Relationships, Analysts Earnings Forecasts and Investment Recommendations. Journal of Accounting and Economics, V. 25, No. 1: pp 101-127. Lin, Hsiou-wei, Maureen F. McNichols, and Patricia C. OBrien. 2003. Analyst Impartiality and Investment Banking Relationships: National Taiwan University, Stanford University, and University of Waterloo. Unpublished Manuscript.Marquardt, Carol and Wiedman, Christine I., How are Earnings Managed? An Examination of Specic Accruals (December 2002). http://ssrn.com/abstract=375660Matsumoto, Dawn A. 2002. Managements Incentives to Avoid Negative Earnings Surprises. Accounting Review, V. 77, No. 3: pp. 483-514. Michaely, R., and K. L. Womack, 1999, Conicts of Interest and the Credibility of Underwriter Analyst Recommendations, Review of Accounting Studies, V. 12: pp. 653-686.Myers, James N., Myers, Linda A. and Skinner, Douglas J., Earnings Momentum and Earnings Management (April 2005).http://ssrn.com/abstract=741244 DOI: 10.2139/ssrn.741244OBrien, Patricia C. 1990. Forecast Accuracy of Individual Analysts in Nine Industries. Journal of Accounting Research, V. 28, No. 2 (Autumn 1990): pp 286-304. Rajan, Raghuram and Henri Servaes. 1997. Analyst Following of Initial Public Oerings. Journal of Finance, V. 52, No. 2: pp 507-529. Rangan, S. 1998. Earnings management and the performance of seasoned equity oerings.Journal of Financial Economics 50: 101-22.Richardson, Scott, Siew Hong Teoh and Peter Wysocki. 2004. "The Walk-down to Beatable Analyst Forecasts: The Role of Equity Issuance and Insider Trading Incentives." Contemporary Accounting Research, V. 21, No. 4: Winter, pp. 885-924.Stewart, Bennett. 2004. Making Financial Goals and Reporting Policies Serve Corporate Strategy: The Case of Progressive Insurance. An Interview with Tom King, VP and Treasurer, Progressive Insurance. Journal of Applied Corporate Finance, V. 16, No. 1: pp. 8-19. Teoh, S., I. Welch, and T. Wong. 1998. Earnings management and the underperformance of seasoned equity oerings. Journal of Financial Economics 50: 63-99.


integrity and finance theory

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