We develop a method for simultaneously estimating the cost of equity capital and the growth in residual earnings that are implied by current stock prices, current book value of equity, and short‐term forecasts of accounting earnings. We demonstrate the use of our method by calculating the expected equity risk premium. Our estimate is higher than estimates in extant studies that are based on the same earnings forecast data. The main difference between our study and these papers is that while they provide arguments supporting an assumed rate of growth beyond the forecast horizon, we estimate this rate.

The paper examines the reaction of market participants to the announcement of a goodwill impairment loss, the nature of the information conveyed by the loss, and whether a cause of goodwill impairment can be traced back to overpayment for targets at the time of prior acquisitions. Our evidence suggests that both investors and financial analysts revise their expectations downward on the announcement of an impairment loss. We find that the negative impact of the loss is significant under different reporting regimes, that is, pre-SFAS-142, transition period and post-SFAS-142, though it is lower in the post period. We further show that goodwill impairment serves as a leading indicator of a decline in future profitability. Our tests also reveal that proxies for overpayment for targets can predict the subsequent goodwill impairment. Indirect evidence suggests that firms with potentially impaired goodwill that did not report an impairment loss may have used their managerial discretion to avoid taking the loss.

We investigate how the availability of traded credit default swaps (CDSs) affects the referenced firms’ voluntary disclosure choices. CDSs enable lenders to hedge their credit risk exposure, weakening their incentives to monitor borrowers. We predict that reduced lender monitoring in turn leads shareholders to intensify their monitoring and demand increased voluntary disclosure from managers. Consistent with this expectation, we find that managers are more likely to issue earnings forecasts and forecast more frequently when traded CDSs reference their firms. We further find a stronger impact of CDS availability on firm disclosure when (1) lenders have higher ability and propensity to hedge credit risk using CDSs, and (2) lender monitoring incentives and monitoring strength are weaker. Consistent with an increase in shareholder demand for public information disclosure induced by a reduction in lender monitoring, we find a stronger effect of CDSs on voluntary disclosure for firms with higher institutional ownership and stronger corporate governance. Overall, our findings suggest that firms with traded CDS contracts enhance their voluntary disclosure to offset the effect of reduced monitoring by CDS‐protected lenders.

This paper tests whether managers repurchase stock when their assessment of the firm's economic value exceeds the market value. Using the forecasts managers would have if they had perfect foresight, we estimate economic value using an earnings-based valuation model. The major findings are as follows:~1! 74 percent of the firms that repurchase shares via fixed-price tender offers are undervalued relative to their preannouncement economic value; this percentage is significantly lower for a control sample,~2! the tender premium is highly correlated with the magnitude of undervaluation, and~3! the decision to satisfy oversubscription demand is inf luenced significantly by the magnitude of undervaluation.A stock repurchase is often described as a device used by managers to reveal information about equity undervaluation. If managers believe that the firm is undervalued relative to their superior private information, they may attempt to disclose this potentially value-increasing information by repurchasing the firm's stock. The undervaluation hypothesis is supported by the significantly positive announcement-period abnormal returns documented by prior empirical studies. 1 The observed price reaction is attributed to investors revising their beliefs upward, upon perceiving favorable information about the firm's future prospects from the repurchase announcement.This paper tests whether firms that repurchase stock via fixed-price tender offers are in fact undervalued relative to their "economic value"~EV!. We estimate EV, which denotes the intrinsic value of a firm, using an earningsbased valuation model. The model expresses the value of a firm's equity as

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