This paper investigates contractual definitions of net income and net worth and the cross‐sectional variation in definitions of net income in a large sample of private debt contracts to shed light on the debt contracting demand for accounting numbers. The descriptive evidence indicates that removing transitory earnings is one principal concern in the measurement of earnings but not in the measurement of net worth. In the extreme, contracts are never written on comprehensive income as an earnings concept, whereas accumulated other comprehensive income is included in net worth in most contracts. In contrast, conservative adjustment, in the sense of including certain types of negative earnings but not the corresponding positive earnings, does not seem to be a primary consideration in measuring net income and net worth. Cross‐sectionally, I find that net income is more likely to be defined differently from the GAAP when net income plays a more important role in a contract, when the loan maturity is longer, and when transitory earnings are less useful for debt contracting. Collectively, the evidence shows that debt contracting parties choose contracting variables in a manner consistent with efficient contracting, and that transitory earnings are relatively less useful in measuring firm performance for debt contracting.

at Dallas. We thank Russell Investments for providing index membership data, Audra Boone, Matias Cattaneo, Jason Chao and Joshua White for help with the implementation of the regression discontinuity analysis, Brian Bushee for sharing the data on the classification of institutional investor types online, and Scott Dyreng for sharing the foreign tax haven data online. We are grateful to the following board member, tax professional, and asset management professionals for sharing their insights:

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This study examines the effect of restrictions on managers' outside employment opportunities on voluntary corporate disclosure. The recognition of the Inevitable Disclosure Doctrine (IDD) by courts in the U.S. states in which the firms are headquartered places greater restrictions on their managers from joining or forming a rival company. We find that, on average, the IDD adoption increases the asymmetric withholding of bad news. We further show that the IDD adoption increases the asymmetric withholding of bad news relative to good news for firms whose managers are mainly concerned about losing their current job. However, an opposite effect is observed for firms whose managers are mainly interested in seeking promotion elsewhere. Furthermore, these effects are less pronounced for firms subject to greater monitoring of their disclosure policy. These results suggest that managers' career concerns affect corporate disclosure policy, and the effect varies with the type of career concerns. JEL Classifications: D82; M4.

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