In 2013, the Sustainability Accounting Standards Board (SASB) began releasing guidelines to identify material (or financially relevant) sustainability metrics. This study investigates the effects of material and immaterial sustainability activities on analyst forecast error and dispersion. We further examine how these effects are influenced by the issuance of stand-alone sustainability reports and the release of SASB’s material sustainability standards. Using a sample of US firms from 2005 to 2018, we find that material sustainability activities are associated with more accurate and less dispersed analyst forecasts when firms issue stand-alone sustainability reports. Among firms that do not release such reports, material sustainability activities improve forecast quality only after the initial release of the SASB standards. Immaterial sustainability activities appear to add noise to information in the financial market and confound earnings forecasts, especially during the pre-SASB period, but this confounding effect reverses in the post-SASB period. Overall, our findings provide empirical evidence that classifying and disclosing corporate sustainability activities yield economic and informational benefits in capital markets.

We examine how stakeholders engage with firms’ first CSRD/ESRS sustainability reports using web-tracking data from eight large firms, covering more than 100,000 visitors and 400,000 page views in the three months following publication. Sustainability disclosures attract similar levels of traffic as financial disclosures. Users interact more intensively with sustainability content and rarely move between financial and sustainability content. Sustainability disclosures are accessed by a more domestic and EU-focused, multi-stakeholder audience, whereas financial disclosures attract a more global and investor-oriented audience.

We study the circumstances under which voluntary disclosure of private information about a firm’s prospects is credible. Upward asset revaluations signal increased future operating performance to financial statement users. However, upward revaluations may also contain a significant discretionary component, especially when the demand for high-quality financial statements is low. We exploit a peculiarity of the Italian private firm setting, where both the tax cost of upward asset revaluations and the link between the related accounting and tax rules vary over time. We predict and find that upward revaluations are positively associated with operating performance when the net tax cost of upward revaluations and the link between their accounting and tax rules are high. Alternatively, it weakens as tax costs decline, and the link between accounting and tax rules loosens. When the tax cost of upward revaluations is particularly low or free and unrelated to tax consequences, the association between upward revaluations and future performance becomes insignificant or negative. These effects steadily extend over time, highlighting the long-term nature of the revaluation signal. They are associated in different but predictable ways with the quality of financial reporting, the eponymy, and the future economic outcomes of the revaluating firms.

This paper studies how sell-side analysts’ educational background affects their forecasting behaviour and career outcomes. Focusing on the chemical manufacturing industry and analysts’ university education, I find that analysts with a matching relevant technological degree provide more accurate earnings and sales forecasts than analysts without one. The matching degree effect on forecast accuracy is more pronounced among firms with high R&D intensity and among analysts in their early career stages. In addition, I find that the market reacts more strongly to forecasts revised and recommendations issued by analysts with a matching degree. Finally, I find that analysts with a matching degree have more favourable career outcomes than analysts who cover the same industry but lack a matching degree.

We investigate how earnings patterns could influence CEO compensation and CEO turnover. We find that the length of an earnings pattern has a curvilinear relation with CEO pay and retention. CEOs who report increasing (decreasing) earnings patterns receive incremental rewards (penalties), which decline as the earnings strings become longer. These upper and lower bounds of the rewards and penalties for the CEOs align with the market valuation of earnings patterns and reflect a tradeoff between inducing productive effort and diminishing managerial entrenchment as these patterns evolve. Additional evidence suggests that the relationship between earnings patterns and CEO compensation is largely driven by firms with strong corporate governance, high earnings persistence, and low market competition. The findings are not attributable to different measures of accounting quality and growth identified in prior research. Our results suggest that earnings patterns play a distinct role in their use for CEO contracts.

We find that stock return volatility is higher during periods of high tax policy uncertainty (TPU), even after controlling for other sources of general macroeconomic uncertainty. Tax policy uncertainty contributes to both systematic and idiosyncratic volatility, but more strongly to the systematic component. Moreover, the effect of TPU on idiosyncratic volatility varies predictably according to firm-level attributes, specifically capital structure and tax complexity. Finally, we find that tax policy uncertainty is positively (negatively) associated with cost of equity capital, bid-ask spread, and illiquidity (autocorrelation of stock returns). Overall, our results suggest that uncertainty surrounding tax policy can impose real costs on investors in the forms of higher risk premia, information asymmetry, and cost of equity capital.

Using conjoint analysis, we examine the extent to which relevance and reliability contribute to the decision usefulness of level 3 fair value measurements for financial instruments. Relevance and reliability are the two fundamental qualitative characteristics for providing decision useful information as the primary objective of financial reporting. Participants ranked, by decision usefulness, five different techniques for determining the essential parameters to estimate a level 3 fair value for a financial instrument. The techniques have different combinations that trade off relevance and reliability. Our main analysis uses 202 MSc and MBA students enrolled in financial and managerial accounting courses. We find that relevance contributes to decision usefulness more than reliability. We find similar results with smaller samples of financial analysts and auditors. The findings have implications for preparers, academics, and standard-setters.

Previous studies suggest that the use of accounting information varies by a country’s financial system. In this study, we focus on Japan, a bank-centred economy with a financial system that differs from the US, and survey bank lenders to examine how they use borrowers’ accounting information in their lending practices. Using responses from 99 Japanese banks, we show that bank lenders use accounting information for lending decisions and continuous monitoring. They prefer persistent earnings tied to cash flows and conservatively modify borrowers’ working capital. From the survey responses about financial covenants, we find that Japanese lenders mainly use the maintenance of net assets and accounting earnings as financial covenants and expect these covenants to be tripwires to obtain bargaining power. Moreover, we document that the unique tradition of close bank–firm relationships, referred to as the main bank system, is still prevalent. Our investigation extends the literature by focusing on the bank-centred financial system and providing direct evidence of bank lenders’ actual use of accounting information.

This study examines when accounting surprises other than the street EPS surprise, i.e. ‘other surprises’, are useful to investors. First, ‘other surprises’ are incrementally important when companies use earnings management to beat the analyst consensus EPS forecasts and when earnings quality is low. Second, ‘other surprises’ are useful in interpreting quarterly results for (i) growth stocks, (ii) stocks with high institutional ownership (particularly by active institutions and blockholders), and (iii) in interpreting the quality of the street EPS surprise. Third, the street EPS surprise shows no association with earnings announcement returns controlling for ‘other surprises.’ This result reflects that some ‘other surprises’, such as the net income surprise, are better predictors of future earnings surprises than the street EPS surprise.

Accounting and Business Research (ABR) was first published in 1970, sponsored by the Institute of Chartered Accountants in England and Wales (ICAEW), with the objective of disseminating research in accounting and related fields. Now that more than half a century has passed since ABR was founded, this is an appropriate time to reflect on the evolution of the interface between academics and the profession, which ABR sought to foster. In this paper, I consider the state of academic accounting in 1970 and compare it with the present 2024, noting particularly how the changes have affected the academic/professional interface. I also consider the prospects for the future.