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This study examines the relationship between management compensation, earnings and cash flows. The preponderance of prior research reveals a substantial correlation between total earnings and compensation. However, the popular press indicates that many firms have switched to less traditional methods of awarding executive compensation. For example, Chrysler Corporation now bases substantial compensation on quality control in manufacturing while First Chicago bases compensation on the minimizing of loan losses. Because of their relatively high debt levels in the late 1980s, some firms are stressing cash flows in designing compensation plans. For example, the New York Times [2/25/90, p.29 in Section 3] reports that RJR Nabisco Inc. uses cash flows to compute the bonus pool while The Wall Street Journal [4/18/90, p. R26] indicates that board of directors often dump income‐based fixed compensation formulas in favor of performance goals such as cash flows. From a normative viewpoint, Holmstrom's [1979] analysis suggests that a performance evaluation scheme based on multiple signals is superior to one that is based on a single signal, provided the additional signals incorporate new information. Given these anecdotal reports indicating cash‐flow based compensation and the implications of existing theory, we explore the role of cash flows and working capital from operations in addition to total reported earnings in determining managerial compensation.

This study examines possible influences on the level of collaboration in published research by the most productive authors of accounting literature. Understanding the collaboration tendencies of these authors should benefit early-career-stage accounting faculty. Seven factors are examined for the publications of 93 of the most productive accounting authors. These productive authors are found to include fewer coauthors on their publications early in their careers. The number of coauthors increases through their first 16 to 17 years and then decreases through the remainder of their careers. The results also indicate that productive accounting researchers include a greater number of coauthors on more recently published articles and on longer articles. Fewer coauthors are included when a productive author is affiliated with a “top-10” university or on articles published in highly ranked accounting journals. Lastly, the results show that prolific authors seek out coauthorship throughout their careers and usually include one or more coauthors on their publications. Implications from these results and specific suggestions for accounting faculty are discussed.

Acquisitions of bankrupt firms can be beneficial because the bankrupt targets may be more receptive to acquisition offers for the purpose of survival, courts can override any resistance that may occur, information on the target is disclosed within the formal reorganization plan, acquirers can accrue tax benefits, and acquirers may assume favorable debt contracts. However, two disadvantages of acquiring a bankrupt firm are higher costs of completing the conversion and the high degree of uncertainty about the target's future cash flows. Results of our analysis suggest that firms announcing acquisitions of bankrupt targets experience favorable wealth effects. Thus, the market appears to anticipate that the present value of future cash flows derived from the target will exceed the cost of the acquisition. Our analysis also found that acquisitions of bankrupt firms yield more favorable wealth effects than acquisitions of healthy firms. The acquisitions of bankrupt firms were especially well received by the market when the acquirer was the sole bidder and when the target's business was closely related to that of the acquirer.

The authors examine the impact of employee litigation on Securities Action Lawsuits. The authors study whether frequently sued firms are more likely to be investigated by Securities Exchange Commission (SEC). The authors study how labor relations are crucial to corporate governance.

The authors use hand-collected datasets of employee violations, misconducts and lawsuits and test whether bad employee treatment increases the likelihood of SEC probe. The authors' methodology includes panel fixed effects, as well as alternative measures of employee mistreatment and SEC case.

The authors find that with each increase in employee dispute increases the likelihood of the firm being investigated by the SEC. The authors find that geographically dispersed firms are more likely to be investigated by the SEC when facing employee disputes and that more labor union coverage and a higher unemployment rate triggers more employee allegations and labor-related lawsuits.

The authors' study is the first to investigate how employee relations affect firms involving federal investigation. The authors aim to contribute to the literature by studying (i) the relation between employee mistreatment and legal challenges, (ii) how firm characteristics affect the path from employee disputes to securities class actions and (iii) the impact of employee mistreatment on the corporate governance.