Faculty & Research

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Abbie J. Smith

Boris and Irene Stern Distinguished Service Professor of Accounting

Phone:
(773) 702-7295
Email:
abbie.smith@chicagobooth.edu
Address:
5807 South Woodlawn Avenue
Chicago, IL 60637

Abbie J. Smith's research on corporate governance and transparency was stimulated by service on corporate and mutual fund boards and the heightened interest in these issues among accounting policymakers, corporate officers and directors, auditors, analysts, and investors resulting from the wave of corporate accounting scandals that began with Enron. Her article "Does Analyst Following Increase Upon the Restriction of Insider Trading?" with Robert Bushman and Joseph Piotroski, was nominated for a 2005 Smith Breeden Prize. She also has received a Marvin Bower Fellowship from the Harvard Business School, a McKinsey Award for Excellence in Teaching, and grants from the Accounting Research Center and Fama Miller Center at Booth. .

Smith has experience as a corporate director and has served on audit, finance, and compensation committees. She feels this has given her an inside perspective on the determinants of corporate investment, restructuring, financing, as well as reporting behavior and their implications for firms' current and future performance. This perspective heavily influences her approach to teaching students how to use financial statements and related information to identify the priorities and objectives of corporate officers and directors; to evaluate a firm's strategy, competitive position, and performance; to assess business, financial, and financial reporting risks; to predict a firm's future performance; and to value a firm's equity.

She says her service as a mutual fund director "has given me the opportunity to see close up a successful interplay between academic finance research on equity risk and returns and its practical application in equity investment. This has influenced how I think about - and teach - the assessment of equity risk and value."

Smith is a member of the board of directors of Ryder System, Inc, HNI Corporation, Dimensional Funds, and Chicago-based UBS Funds.

She earned a bachelor's degree in 1975, an MBA in accounting and finance in 1979, and a PhD in accounting in 1981 from Cornell University. She joined the Chicago Booth faculty in 1980. Smith enjoys corporate and mutual fund board work, yoga, running, theater, music, gardening, and travel.

Selected Publications

With R. Bushman and R. Wittenberg-Moerman, “Price Discovery and Dissemination of Private Information by Loan Syndicate Participants,” Journal of Accounting Research (2010).

With R. Bushman and J. Piotroski, "What Determines Corporate Transparency?," Journal of Accounting Research - Supplement (2004).

With R. Bushman and J. Piotroski, "Does Analyst Following Increase Upon the Restriction of Insider Trading?," Journal of Finance (2005).

With R. Bushman, Q. Chen, and E. Engel, "Financial Accounting Information, Organizational Complexity, and Corporate Governance Systems," Journal of Accounting and Economics (2004).

With R. Bushman, "Financial Accounting Information and Corporate Governance," Journal of Accounting and Economics (2001).

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

New: Executives’ 'Off-the-Job' Behavior, Corporate Culture, and Financial Reporting Risk
Date Posted: Jun  30, 2012
We examine how and why two aspects of CEO behavior outside the workplace, as measured by prior legal infractions and the ownership of luxury goods, are related to the likelihood of misstated financial statements, including fraud and material reporting errors. We interpret an executive’s prior record of legal infractions, including charges of driving under the influence, other drug related charges, domestic violence, reckless behavior, disturbing the peace, and speeding tickets, as a symptom of

REVISION: Investment Cash Flow Sensitivities Really Reflect Related Investment Decisions
Date Posted: Sep  06, 2011
An important, unresolved issue in finance is whether the sensitivity of capital investment to internally generated cash flows reflects the impact of binding financing constraints on firms’ investment decisions. We contribute new insight to this debate by providing systematic evidence that investment-cash flow sensitivity (ICFS) primarily reflects the fundamental connection between capital investment and working capital investment as interrelated manifestations of firm growth. We decompose the ca

New: Capital Allocation and Timely Accounting Recognition of Economic Losses
Date Posted: Jan  05, 2011
This paper explores direct relations between corporate investment behavior and the timeliness of accounting recognition of economic losses (TLR) reflected in a country’s accounting regime. We explicitly investigate the extent to which TLR influences investment decisions of firm managers. Given the asymmetric emphasis on negative outcomes inherent in TLR, we hypothesize that TLR will most strongly influence investment behavior when managers face deteriorating investment environments. We conjectur

Transparency, Financial Accounting Information, and Corporate Governance
Date Posted: Sep  07, 2005
Audited financial statements along with supporting disclosures form the foundation of the firm-specific information set available to investors and regulators. In this paper, the authors discuss economics-based research focused on the properties of accounting systems and the surrounding institutional environment important to effective governance of firms. They provide a framework for understanding the operation of accounting information in an economy, discuss a broad range of important research f

What Determines Corporate Transparency?
Date Posted: Sep  30, 2003
We investigate corporate transparency, defined as the availability of firm-specific information to those outside publicly traded firms, and viewed as the joint output of multi-faceted systems whose components collectively produce, gather, validate and disseminate information to market participants. We factor analyze an extensive range of measures capturing countries' firm-specific information environments, and isolate two factors interpreted as financial transparency and governance transparency.

Financial Accounting Information and Corporate Governance
Date Posted: May  22, 2003
This paper reviews and proposes additional research concerning the role of publicly reported financial accounting information in the governance processes of corporations. We first review and analyze research on the use of financial accounting measures in managerial incentive plans and explore future research directions. We then propose that governance research be extended to explore more comprehensively the use of financial accounting information in additional corporate control mechanisms, and s

Insider Trading Restrictions and Analysts' Incentives to Follow Firms
Date Posted: Mar  10, 2003
Motivated by extant finance theory predicting that insider trading crowds out private information acquisition by outside investors, we use analyst following data for 100 countries for the years 1987-1998, to study whether analyst following increases following adoption of or the initial enforcement of insider trading legislation. We document that both the intensity of analyst coverage (average number of analysts covering followed firms within a country) and breadth of coverage (the proportion of

Financial Accounting Information and Corporate Governance
Date Posted: Dec  12, 2001
This paper reviews and proposes additional research concerning the role of publicly reported financial accounting information in the governance processes of corporations. We first review and analyze research on the use of financial accounting measures in managerial incentive plans and explore future research directions. We then propose that governance research be extended to explore more comprehensively the use of financial accounting information in additional corporate control mechanisms, and s

The Sensitivity of Corporate Governance Systems to the Timeliness of Accounting Earnings
Date Posted: Oct  13, 2000
The purpose of this paper is to investigate how governance systems of large public U.S. corporations vary with information properties of numbers produced by their financial accounting systems. We argue that in firms whose current accounting numbers do a relatively poor job of capturing the effects of the firm's current activities and outcomes on shareholder value, the accounting numbers are less effective in the governance setting. We predict that such firms will substitute costly governance m

An Analysis of the Relation Between the Stewardship and Valuation Roles of Earnings
Date Posted: May  25, 2000
We develop an agency-based model that provides a direct theoretical connection between compensation-earnings sensitivities (CERCs) and value-earnings sensitivities (ERCs). The model predicts that CERCs are increasing in ERCs. This relation between valuation and stewardship derives from the fact that the capitalization rate of earnings into value also influences the marginal product of current period actions that impact current earnings. Our empirical tests of the model provide evidence of a posi

An Empirical Investigation of Trends in the Absolute and Relative Use of Earnings in Determining Cas...
Date Posted: Jan  06, 1999
The purpose of this paper is to provide evidence on whether there have been changes over time in the compensation-earnings relation. We investigate whether there is a trend during the period 1971-95 in the sensitivity of executive pay to reported earnings and in the importance of earnings relative to other information in explaining executive pay. As addressed in Gjesdal [1981] and in the model we develop, the relevance of a performance measure for valuing the firm may not be the same as its rele

Courses

Number Name Quarter
30130 Financial Statement Analysis 2012 (Fall)

Other Interests

Jogging, biking, yoga, music, travel, and songwriting.

Research Activities

Corporate governance and transparency; performance measurement; corporate restructuring; financial accounting information; flows of information to capital markets; and securities prices.