The investment opportunity set and accounting procedure choice

Douglas J. Skinner

442 citations0/0 files storedJournal of Accounting and Economics

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Auditing, Earnings Management, Governance Corporate Finance and Governance Accounting Theory and Financial Reporting

Abstract

This paper provides evidence on the cross-sectional relation between firms' investment opportunities, their debt and compensation contracts, their size and financial leverage, and their accounting procedure choices. This evidence is important, because previous studies hypothesize that the link between firms' investment opportunities and their accounting choices helps explain extant results on the size, debt/equity, and bonus plan hypotheses. However, while I find that firms' investment opportunities do affect the nature of their contracts. I also find that the ‘traditional’ explanations for accounting choice are important after controlling for the effects of the investment opportunity set.

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References

1983Limited-dependent and qualitative variables in econometrics 1977Determinants of corporate borrowing 1988Management ownership and market valuation 1985Positive Accounting Theory 1985The effect of bonus schemes on accounting decisions 1979On financial contracting 2011The effects of bonus schemes on accounting decisions 1984On the Existence of an Optimal Capital Structure: Theory and Evidence

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1996Investment opportunities and the structure of executive compensation 2011Capital Versus Performance Covenants in Debt Contracts 2004Earnings management, surplus free cash flow, and external monitoring 2018Transparency and firm innovation 2003Investment opportunity set, corporate governance practices and firm performance 2007Disclosure frequency and earnings management☆2016

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