Faculty & Research

Douglas J. Skinner

Eric J. Gleacher Distinguished Service Professor of Accounting

Phone :
1-773-702-7137
Address :
5807 South Woodlawn Avenue
Chicago, IL 60637

Douglas Skinner is a leading expert in corporate disclosure practices, corporate financial reporting, and corporate finance, with a focus on payout policy. His research addresses topics such as (1) the causes and capital market effects of managers' corporate disclosure choices (especially forward-looking information, including earnings forecasts, earnings pre-announcements, and guidance, corporate conference calls, etc.); (2) how the legal and regulatory environment affects managers’ corporate disclosures; (3) managers' incentives to use their discretion in the financial accounting and reporting process to manage reported accounting earnings ("earnings management"); (4) how stock prices respond to earning releases, especially for high growth companies ("earnings torpedoes"); and (5) the determinants of firms' payout policies, including whether and how much firms should pay out, the form of payout (dividends versus stock repurchases), etc.

Professor Skinner’s research is published in prominent accounting and finance journals, including The Accounting Review, the Journal of Accounting and Economics, the Journal of Accounting Research, the Journal of Business, the Journal of Finance, and the Journal of Financial Economics. He is co-editor of the Journal of Accounting Research, and was previously co-editor of the Journal of Accounting and Economics.

Professor Skinner’s research has been prominently featured in the Wall Street Journal, the Financial Times, The Economist,, The New York Times, and BusinessWeek.

In 2010, Professor Skinner was named one of the top business school professors in the world in the Financial Times Global MBA Rankings. His teaching has included courses taught to undergraduate upper-classmen, full-time and part-time MBA students, executive MBA students, executives, consultants, and Ph.D. students. His teaching covers topics that include introductory financial accounting, intermediate financial accounting, corporate financial reporting and analysis, financial statement analysis, corporate finance, and empirical methods in accounting research.

Prior to his appointment at Chicago, he was KPMG Professor of Accounting at the Ross School of Business, University of Michigan, where he had been on the faculty since 1989.

He holds a bachelor's degree in Economics with first class honors in Accounting and Finance from Macquarie University in Sydney and a master's degree and PhD in Applied Economics: Accounting and Finance from the University of Rochester. He has been a tenured full professor at Chicago Booth since 2005.

 

2014 - 2015 Course Schedule

Number Name Quarter
30904 Empirical Research on Managers Corporate Financial Reporting Decisions 2014 (Fall)
35801 Corporate Finance for Executives 2015 (Winter)

Other Interests

Gardening, rugby, swimming.

 

Research Activities

Corporate financial reporting and disclosure practice; corporate payout policy.

"Why Firms Voluntarily Disclose Bad News," Journal of Accounting Research (1994).

"Earnings Disclosures and Stockholder Lawsuits," Journal of Accounting and Economics (1997).

With Richard Sloan, "Earnings Surprises, Growth Expectations, and Stock Returns or Don't Let an Earnings Torpedo Sink Your Portfolio," Review of Accounting Studies (2002).

With Harry DeAngelo and Linda DeAngelo, "Are Dividends Disappearing? Dividend Concentration and the Consolidation of Earnings," Journal of Financial Economics (2004).

With Harry DeAngelo and Linda DeAngelo, “Corporate Payout Policy,” Foundations and Trends in Finance (2008).

For a listing of research publications please visit ’s university library listing page.

REVISION: Payout Policy Through the Financial Crisis: The Growth of Repurchases and the Resilience of Dividends
Date Posted: Sep  25, 2014
We compare the payout policies of US industrials and banks over the past 30 years, including through the financial crisis, to better understand dividends, especially for banks. For industrials, the declining propensity to pay (Fama and French, 2001) largely reverses after 2002 and is accompanied by a strong increase in aggregate dividends. Financials, especially banks, have a higher and more stable propensity to pay dividends. Large banks resist cutting dividends as the crisis begins but then cut dividends aggressively while industrial dividends are largely unaffected. Before the crisis, repurchases increase strongly for both sets of firms, pushing total payouts to historic levels, but are quickly reduced at the onset of the crisis. Collectively, the evidence suggests that banks use dividends to signal financial strength while the agency costs of free cash flow is the dominant explanation for industrial payouts.

New: The Evolution of Audit Market Structure and the Emergence of the Big 4: Evidence from Australia
Date Posted: May  02, 2014
We use a large panel of Australian audit market data to shed light on the determinants of audit market structure. The panel spans nearly 50 years, and begins before the emergence of the Big 4 in Australia. Over this period, the size distribution of companies becomes increasingly dominated by a small number of large, complex entities. We argue that this caused a structural shift in the demand for audit services and necessitated investments by auditors in endogenous sunk costs (Sutton, 1991), which led to the emergence of a small set of increasingly dominant audit firms. We provide evidence consistent with these ideas. The results have implications for the current regulatory debate on audit market concentration and the role of the Big 4.

REVISION: Is Japan Really a 'Buy'? The Corporate Governance, Cash Holdings, and Economic Performance of Japanese Companies
Date Posted: May  02, 2014
We investigate whether Japan’s corporate governance reforms improve economic performance and valuation. Consistent with an overall improvement in governance since 2000, Japanese firms hold less cash and increase payouts to shareholders. However, Japanese firms still hold more cash than US firms, even when we account for the large increase in US firms’ holdings of cash and marketable securities. In cross section, reductions in (excess) cash and increases in payouts (especially dividends) are associated with improvements in performance. These changes are also related to declines in the influence of the banks (which traditionally sit at the center of Japanese horizontal keiretsu) and with increases in the influence of foreign investors. The market valuation of Japanese firms’ cash holdings was lower than that of US firms during the 1990s but has now increased to levels closer to those of US firms. Collectively, the evidence suggests that performance improves in those Japanese ...

New: The Politics of Accounting Standard-Setting: A Review of Empirical Research
Date Posted: Dec  16, 2013
We provide an overview of the empirical literature on the politics of accounting standard-setting, focusing on the US Financial Accounting Standards Board (FASB). Although it is clear from casual observation that politics sometimes plays a first-order role in the determination of accounting standards, we argue that more can be done to improve our understanding of this important topic. Based on our review, we outline what we see to be a number of potentially fruitful directions for future research.

REVISION: The Politics of Accounting Standard-Setting: A Review of Empirical Research
Date Posted: Oct  20, 2013
We provide an overview of the empirical literature on the politics of accounting standard setting, focusing on the U.S. Financial Accounting Standards Board (FASB). Although it is clear from casual observation that politics sometimes plays a first-order role in the determination of accounting standards, we argue that more can be done to improve our understanding of this important topic. Based on our review, we outline what we see to be a number of potentially fruitful directions for future research.

New: How Should We Think About Earnings Quality? A Discussion of 'Earnings Quality: Evidence from the Field'
Date Posted: Oct  19, 2013
Dichev, Graham, Harvey and Rajgopal (DGHR 2013) survey CFOs to elicit their views on earnings quality, broader trends in financial reporting, and the prevalence of earnings management. They provide some interesting insights on these issues. We discuss how CFOs’ incentives in the financial reporting process are likely to affect what we can learn from them about earnings quality. We also discuss how DGHR’s methodological choices regarding survey sample and question design affect their inferences, including what we can infer about the prevalence and magnitude of earnings management.

New: The Role of the Media in Disseminating Insider Trading News
Date Posted: Mar  19, 2013
We use the disclosure of insiders’ trades to investigate whether the way in which news is disseminated by the media affects the market response. To do this, we use recent changes in the disclosure rules governing insider trades and an exogenous change in media coverage to cleanly identify media effects. Using high-resolution intraday data and a plausibly exogenous change in media coverage, we find clear media effects in the price and volume response to news. These results help resolve open que

REVISION: What Do Dividends Tell Us About Earnings Quality?
Date Posted: Dec  24, 2012
Over the past 30 years, there have been significant changes in the distribution of earnings — cross-sectional variation has increased, with increasing left skewness—as well as in corporate payout policy, with many fewer firms paying dividends and the emergence of stock repurchases. We investigate whether the informativeness of payout policy with respect to earnings quality changes over this period. We find that the reported earnings of dividend-paying firms are more persistent than those of

New: Bid-Ask Spreads around Earnings Announcements: Evidence from the NASDAQ National Market System
Date Posted: Sep  08, 2012
Changes in bid-ask spreads are small around earnings announcements in general. However, there is evidence of a temporary increase in bid-ask spreads at the time earnings are announced for announcements that convey the most information, especially for announcements that are late and convey bad news. Good news releases (particularly when they occur earlier than expected) are associated with a larger trading volume reaction than bad news releases, which helps to explain the differential spread ef

New: Audit Quality and Auditor Reputation: Evidence from Japan
Date Posted: Jul  29, 2012
We study events surrounding ChuoAoyama’s failed audit of Kanebo, a large Japanese cosmetics company whose management engaged in a massive accounting fraud. ChuoAoyama was PwC’s Japanese affiliate and one of Japan’s largest audit firms. In May 2006, the Japanese Financial Services Agency (FSA) suspended ChuoAoyama for two months for its role in the Kanebo fraud. This unprecedented action followed a series of events that seriously damaged ChuoAoyama’s reputation. We use these events to pro

REVISION: Audit Quality and Auditor Reputation: Evidence from Japan
Date Posted: Jul  28, 2012
We study events surrounding ChuoAoyama’s failed audit of Kanebo, a large Japanese cosmetics company whose management engaged in a massive accounting fraud. ChuoAoyama was PwC’s Japanese affiliate and one of Japan’s “Big Four” audit firms. In May 2006, the Japanese Financial Services Agency (FSA) suspended ChuoAoyama for two months as punishment for its role in the accounting fraud at Kanebo. This action was unprecedented, and followed a sequence of events that seriously damaged ChuoAoy

New: Discussion of 'Accounting Standards and Debt Covenants: Has the 'Balance Sheet Approach' Led to a De
Date Posted: Nov  12, 2011
Demerjian (2011) argues that a shift by U.S. standard setters towards the balance sheet approach reduces the usefulness of balance sheet numbers for contracting. Consistent with this argument, he provides evidence of a decline in the use of balance sheet-based covenants in debt contracts, a useful finding. Nevertheless, I argue that the evolution of standard-setting is more complex than this argument implies, and evaluate the economic basis of Demerjian’s arguments for how debt contracts respond

REVISION: Measuring Securities Litigation Risk
Date Posted: Oct  12, 2011
Extant research commonly uses indicator variables for industry membership to proxy for securities litigation risk. We provide evidence on the construct validity of this measure by reporting on the predictive ability of alternative models of litigation risk. While the industry measure alone does a relatively poor job of predicting litigation, supplementing this variable with measures of firm characteristics (such as size, growth, and stock volatility) considerably improves predictive ability. A

REVISION: Earnings Guidance and Market Uncertainty
Date Posted: Sep  14, 2011
We study the effect of disclosure on uncertainty by examining how management earnings forecasts affect stock market volatility. Using implied volatilities from exchange-traded options prices, we find that management earnings forecasts, on average, increase short-term volatility. This effect is attributable to forecasts that convey bad news, especially when firms release forecasts sporadically (as opposed to on a routine basis). In the longer run, market uncertainty declines after earnings are

New: Accounting Research in the Japanese Setting
Date Posted: Sep  08, 2011
In this commentary I offer some thoughts on the possibilities for accounting research that uses the Japanese setting. I argue that the uniqueness of the Japanese setting offers many opportunities for researchers, and hope that we can encourage more researchers to take advantage of this setting to advance the literature on financial reporting and disclosure.

REVISION: Implications for GAAP from an Analysis of Positive Research in Accounting
Date Posted: Sep  17, 2010
Based on extant literature, we review the positive theory of GAAP. The theory predicts that GAAP’s principal focus is on control (performance measurement and stewardship) and that verifiability and conservatism are critical features of a GAAP shaped by market forces. We recognize the advantage of using fair values in circumstances where these are based on observable prices in liquid secondary markets, but caution against expanding fair values to financial reporting more generally. We conclude th

New: Corporate Payout Policy
Date Posted: Jun  24, 2010
We present a synthesis of academic research on corporate payout policy grounded in the pioneering contributions of Lintner [1956] and Miller and Modigliani [1961]. We conclude that a simple asymmetric information framework that emphasizes the need to distribute FCF and that embeds agency costs (as in Jensen [1986]) and security valuation problems (as in Myers and Majluf [1984]) does a good job explaining the main features of observed payout policies - i.e., the massive size of corporate payouts

REVISION: Corporate Payout Policy
Date Posted: Jul  02, 2009
We present a synthesis of academic research on corporate payout policy grounded in the pioneering contributions of Lintner (1956) and Miller and Modigliani (1961). We conclude that a simple asymmetric information framework that emphasizes the need to distribute FCF and that embeds agency costs (as in Jensen (1986)) and security valuation problems (as in Myers and Majluf (1984)) does a good job of explaining the main features of observed payout policies - i.e., the massive size of corporate payo

REVISION: Management Forecasts in Japan: An Empirical Study of Forecasts that are Effectively Mandated
Date Posted: May  06, 2009
We study management forecasts in Japan, where forecasts are effectively mandated but managers have considerable latitude over the numbers they release. We find that managers’ initial earnings forecasts for a fiscal year are systematically upward-biased but that they revise their forecasts downward during the fiscal year so that most earnings surprises are non-negative. Managers’ initial forecast optimism is inversely related to firm performance, and is more pronounced for firms with higher level

REVISION: The Rise of Deferred Tax Assets in Japan: The Case of the Major Japanese Banks
Date Posted: Aug  21, 2008
This paper describes the role that accounting for deferred taxes has played in the ongoing financial crisis among the major Japanese banks, as dramatized most vividly by the recent collapse of Resona Bank. I argue that deferred tax accounting: (1) has been used by the Japanese Government, including bank regulators, to help give the major banks collectively the appearance of financial well-being in spite of their economic difficulties, and (2) that managers of these banks have used deferred tax

New: Accounting for Intangibles - A Critical Review of Policy Recommendations
Date Posted: Jan  06, 2008
I review and critically evaluate the arguments in favor of reforming current accounting and disclosure practices related to intangibles. I argue that the case for reform is actually rather weak. Proponents of reform provide little cogent evidence in support of claims that current practice is having adverse capital market effects. In fact, theory and evidence from corporate finance suggest that capital markets perform well in financing investments in innovative, high-technology activities. I

New: Discussion of 'The Implications of Unverifiable Fair-Value Accounting: Evidence from the Political E
Date Posted: Jan  06, 2008
Ramanna (2007) provides interesting and novel evidence on how firms use contributions from their political action committees (PACs) to members of Congress as a means of lobbying for preferred positions on the two exposure drafts that led to SFAS-141 and SFAS-142. My discussion raises some concerns about his main conclusion: that pooling firms lobbied the FASB to obtain a "fair value" based impairment rule to facilitate their ability to manipulate financial statements. I offer a more benign exp

New: The Evolving Relation between Earnings, Dividends, and Stock Repurchases
Date Posted: Nov  03, 2007
This paper examines how the relation between earnings and payout policy has evolved over the last three decades. Three principal groups of payers have emerged: firms that pay dividends and make regular repurchases, firms that make regular repurchases, and firms that make occasional repurchases. Firms that only pay dividends are largely extinct. Repurchases are increasingly used in place of dividends, even for firms that continue to pay dividends. While other factors help explain the timing o

New: Does Earnings Guidance Affect Market Returns? The Nature and Information Content of Aggregate Earnin
Date Posted: Aug  21, 2007
We investigate whether earnings guidance affects aggregate stock returns through its effects on expectations about overall earnings performance and/or aggregate expected returns. We find that aggregate guidance, especially relative levels of quarterly downward guidance, is associated with analyst- and time-series-based measures of aggregate earnings news. We find more modest evidence that guidance, again, largely downward guidance, is associated with market returns - market returns appear to r

Is Guidance a Macro Factor? the Nature and Information Content of Aggregate Earnings Guidance
Date Posted: Mar  14, 2007
Although a great deal of research documents the information content of management earnings forecasts at the firm level, there is little research on the informativeness of aggregate earnings guidance. We argue that aggregate earnings guidance is potentially informative at the market/economy level through its effects on expectations about market-level expected future cash flows and expected returns. We find that aggregate guidance, especially relative levels of quarterly downward guidance, is asso

New: Earnings Momentum and Earnings Management
Date Posted: Mar  09, 2007
This paper provides evidence on firms that report long "strings" of consecutive increases in earnings per share (EPS). First, we find 746 firms that report earnings strings of at least 20 quarters since 1962, and show that this frequency is much larger than would be expected by chance. We interpret this as prima facie evidence of earnings management. Next, we document that these firms enjoy abnormal returns that average over 20 percent per year during the first five years of these strings, an

REVISION: Earnings Momentum and Earnings Management
Date Posted: Sep  01, 2006
This paper provides evidence on firms that report long "strings" of consecutive increases in earnings per share (EPS). First, we find 746 firms that report earnings strings of at least 20 quarters since 1962, and show that this frequency is much larger than would be expected by chance. We interpret this as prima facie evidence of earnings management. Next, we document that these firms enjoy abnormal returns that average over 20 percent per year during the first five years of these strings, an

New: The Evolving Relation between Earnings, Dividends, and Stock Repurchases
Date Posted: Jun  08, 2006
There have been fundamental changes in corporate dividend policy over the last several decades (Fama and French, 2001; DeAngelo, DeAngelo, and Skinner, 2000). To shed new light on the disappearance of dividends, this paper examines how the relation between earnings and corporate payout policy changes over the last 50 years. Since 1980, two groups of payers emerge: firms that both pay dividends and make repurchases and firms that only make repurchases. For firms that both pay dividends and mak

New: Does Earnings Guidance Affect Market Returns? The Nature and Information Content of Aggregate Earnin
Date Posted: May  16, 2006
We investigate whether earnings guidance affects aggregate stock returns through its effects on expectations about overall earnings performance and/or aggregate expected returns. We find that aggregate guidance, especially relative levels of quarterly downward guidance, is associated with analyst- and time-series-based measures of aggregate earnings news. We find more modest evidence that guidance, again, largely downward guidance, is associated with market returns - market returns appear to r

Large-Sample Evidence on the Debt Covenant Hypothesis
Date Posted: Jan  18, 2006
We use Dealscan, a database of private corporate lending agreements, to provide large-sample tests of the debt covenant hypothesis. Dealscan offers several advantages over the data available in previous debt covenant studies, principally through much larger sample sizes, more representative samples, and the availability of extensive actual covenant detail. These data advantages allow us to construct powerful tests, in which we find clear support for the debt covenant hypothesis. Apart from dir

Employee Stock Options, EPS Dilution, and Stock Repurchases
Date Posted: Mar  03, 2004
We investigate whether corporate managers' stock repurchase decisions are affected by their incentives to manage diluted earning-per-share (EPS). We find that managers increase the level of their firms' stock repurchases when: (1) the dilutive effect of outstanding employee stock options (ESOs) on diluted EPS increases, and (2) earnings are below the level required to achieve the desired rate of EPS growth. We also find that managers' repurchase decisions are not associated with actual ESO exerc

Are Dividends Disappearing? Dividend Concentration and the Consolidation of Earnings
Date Posted: Dec  04, 2003
Although the number of dividend paying industrials declines by more than 50% over the last two decades (Fama and French (2001a)), aggregate real dividends paid by industrials increase over the same period. Dividends increase despite a precipitous decline in the number of payers because (i) the reduction in payers occurs almost entirely among firms that pay very small dividends, and (ii) increased real dividends from the top payers swamp the modest dividend reduction associated with the loss of

The Role of Supplementary Statements with Management Earnings Forecasts
Date Posted: Oct  27, 2003
We investigate managers' decisions to supplement their firms' management earnings forecasts. We classify these supplementary disclosures as either qualitative "soft talk" disclosures or verifiable forward-looking statements. We find that managers provide "soft talk" disclosures with similar frequency for good and bad news forecasts, but are more likely to supplement good news forecasts with verifiable forward-looking statements. We examine the market response to these forecasts and find that

Are Dividends Disappearing? Dividend Concentration and the Consolidation of Earnings
Date Posted: Sep  16, 2003
Aggregate real dividends paid by industrial firms increased over the past two decades even though, as Fama and French (2001, JFE) document, the number of dividend payers decreased by over 50%. The reason is that (i) the reduction in payers occurs almost entirely among firms that paid very small dividends, and (ii) increased real dividends from the top payers swamp the modest dividend reduction from the loss of many small payers. These trends reflect high and increasing concentration in the sup

The Role of Supplementary Statements with Management Earnings Forecasts
Date Posted: Feb  22, 2003
We investigate managers' decisions to supplement their firms' management earnings forecasts. We classify these supplementary disclosures as either qualitative "soft talk" disclosures or verifiable forward-looking statements. We find that managers provide "soft talk" disclosures with similar frequency for good and bad news forecasts, but are more likely to supplement good news forecasts with verifiable forward-looking statements. We examine the market response to these forecasts and find that bad

Should Firms Disclose Everything to Everybody? A Discussion of 'Open Versus Closed Conference Calls:...
Date Posted: Feb  05, 2003
Bushee, Matsumoto, and Miller (2002) is a timely study in an area Ð corporate disclosure policy Ð that is increasingly important to regulators, corporate managers, and academics. The authors report several results that will be of interest to these groups. I describe the corporate disclosure issues that make the authors' research questions of broader relevance than their specific topic might suggest. I then provide comments on theoretical and empirical aspects of the study. Overall, the study is

An Empirical Examination of Conference Calls as a Voluntary Disclosure Medium
Date Posted: Nov  05, 2001
Corporate conference calls are large-scale telephone conference calls during which managers make presentations to and answer questions from various market participants, usually about earnings. In this paper, we sample 1,056 corporate conference calls made by 808 firms during February-November 1995 to provide evidence on three questions: (1) whether conference calls provide information to stock market participants, (2) whether investors have equal access to the information provided during these c

An Empirical Examination of Conference Calls as a Voluntary Disclosure Medium
Date Posted: Nov  05, 2001
This paper provides evidence on the characteristics of firms that hold conference calls and on whether these calls provide information to market participants. We find that firms that hold conference calls are larger, more profitable, go to the capital markets more often, and are growing more rapidly than other firms. We also find that conference calls provide information to market participants over and above the information contained in the accompanying press release. We find that trading volume

Earnings Management: Reconciling the Views of Accounting Academics, Practitioners, and Regulators
Date Posted: May  16, 2000
We address the fact that accounting academics often have very different perceptions of earnings management than do practitioners and regulators. Practitioners and regulators often see earnings management as pervasive and problematic, and in the need of immediate action to remedy. Academics are more sanguine, unwilling to believe that earnings management is being actively practiced by most firms or that the earnings management that does exist should necessarily concern investors. We explore the r

Earnings Disclosures and Stockholder Lawsuits
Date Posted: May  01, 2000
This paper provides evidence on the relation between the timeliness of voluntary earnings disclosures and the outcomes of related stockholder litigation. Like Francis Philbrick and Schipper (1994a) I find that many lawsuits result from voluntary disclosures of adverse earnings news. However I also document that: (1) many voluntary earnings disclosures are not made on a timely basis; (2) less timely voluntary disclosures result in more costly lawsuit outcomes; (3) a simple model that predicts

Earnings Management and Deferred Taxes: The Valuation Allowance for Deferred Tax Assets
Date Posted: Apr  26, 2000
A long-standing issue in the accounting literature is whether corporate managers exercise their accounting discretion to influence reported earnings. This paper extends this research by investigating whether managers manipulate the 'valuation allowance' for deferred tax assets. This account has several features that recommend it as a good place to look for earnings management. First, since this account is fairly 'new' (1992), there are no well-established formulae, or even any clear guidelines,

Special Dividends and the Evolution of Dividend Signaling
Date Posted: Dec  15, 1999
This paper documents that (1) special dividends were once commonly paid by NYSE firms, but are now a rare phenomenon; (2) firms typically paid specials almost as predictably as they paid regulars; and (3) despite the dramatic decline in specials as a whole, the incidence of very large specials increased in recent years. Most plausibly, small specials disappeared because their predictability made them close substitutes for regular dividend signals, while large specials survived because their she

Reversal of Fortune: Dividend Policy and the Disappearance of Sustained Earnings Growth
Date Posted: Sep  13, 1999
Managers of more than two-thirds of 145 NYSE firms responded to stalled earnings growth by increasing dividends, with most increases at least as large as the dividend increase in the peak earnings year. These dividend increases are difficult to reconcile with signalling models since (i) most firms' prior sustained earnings growth evaporated, and (ii) there is essentially no relation between favorable dividend signals and future earnings. The stock market recognized the reduced growth earnings, w

Earnings Surprises, Growth Expectations, and Stock Returns: Don't Let an Earnings Torpedo Sink Your ...
Date Posted: Aug  16, 1999
It is well-established that the realized returns of ?growth? stocks have been low relative to other stocks. We show that this phenomenon is explained by a large and asymmetric response to negative earnings surprises for growth stocks. After controlling for this effect, there is no longer evidence of a stock return differential between growth stocks and other stocks. Our evidence is more consistent with investors having naively optimistic expectations about the prospects of growth stocks (e.g., L

Determinants of the Valuation Allowance for Deferred Tax Assets Under SFAS No. 109
Date Posted: Aug  12, 1998
This paper explores the determinants of the valuation allowance for deferred tax assets under SFAS No. 109. We find that, consistent with SFAS No. 109, the allowance is larger for firms with relatively more deferred tax assets and smaller for firms with higher levels of expected future taxable income. The most important explanatory variable for the valuation allowance is the level of firms' tax credit and tax loss carryforwards, consistent with these items being more difficult to realize. We fin