Faculty & Research

Abbie Smith

Abbie J. Smith

Boris and Irene Stern Distinguished Service Professor of Accounting

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 resulting from the wave of accounting scandals that began with Enron. Her recent corporate governance research examines the “CEO factor” in explaining corporate behavior as manifested in the relation between CEO lifestyle and corporate reporting, insider trading, risk management, bankruptcy, financial performance, and social responsibility.

Smith is a member of the board of directors of HNI Corporation, Ryder System, Inc., Dimensional Funds, and Chicago-based UBS Funds, and has served on audit, compensation, finance, and governance committees. She feels her board experience has given her an inside perspective on the generation and evaluation of business models and strategies, the determinants of corporate investment, financing, reporting behavior, and the interplay between academic research and its business applications. This perspective heavily influences her approach to research and teaching.

She earned a bachelor's degree in 1975 from the College of Human Ecology at Cornell University, an MBA in 1979, and a PhD in accounting in 1981 from Cornell University. She joined the Chicago Booth faculty in 1980. She received a Marvin Bower Fellowship from the Harvard Business School, a McKinsey Award for Excellence in Teaching, and grants from the Accounting Research Center, James S. Ely, III Corporate Governance Research Fund, Fama Miller Center, and IGM at Booth.

Smith enjoys yoga, theater, music, gardening, and travel.


2020 - 2021 Course Schedule

Number Title Quarter
30130 Financial Statement Analysis 2021  (Winter)

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.

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).

Davidson, Robert, Aiyesha Dey, and Abbie Smith. "Executives' “off-the-job” behavior, corporate culture, and financial reporting risk." Journal of Financial Economics (2013).

Executives' Legal Records, Lavish Lifestyles, and Insider Trading Activities (working paper).

CEO Materialism and Corporate Social Responsibility (working paper).

For a listing of research publications, please visit the university library listing page.

New: Hedge Fund Activism in the Corporate Bond Market: Evidence from Bondholders’ Responses to Delay in Financial Reporting
Date Posted: Apr  18, 2018
We investigate hedge fund activism in the corporate bond market. The empirical setting we use is the active enforcement of bondholders’ rights during 2003-07 triggered by issuers’ violation of a standard bond covenant requiring timely financial reporting. Specifically, we examine differences in target company characteristics, strategic trading behavior, and subsequent outcomes between hedge-fund-involved and non-hedge-fund-involved interventions. We find that hedge-fund-involved interventions are more likely to target companies with higher levels of cash holdings, but less likely to target companies with a higher bankruptcy probability and greater amount of private debt outstanding. Meanwhile, the late filers in hedge-fund-involved interventions are more likely to have liquid bonds and their later filings are more likely to be predicted (e.g., triggered by option backdating investigations). The empirical evidence from strategic trading and market reactions suggests that ...

REVISION: Bank CEO Materialism: Risk Controls, Culture and Tail Risk
Date Posted: Dec  04, 2017
Focusing on a key CEO characteristic, materialism, we investigate how the prevalence of materialistic CEOs in the banking sector has evolved over time, and how risk management policies, the behavior of non-CEO executives and bank tail risk vary with CEO materialism. We document that the proportion of banks run by materialistic CEOs increased significantly from 1994 to 2004, coinciding with major bank deregulation. Using an index reflecting the strength of risk management functions (RMI), we find that RMI is significantly lower for banks with materialistic CEOs, and that RMI significantly decreases after a materialistic CEO succeeds a non-materialistic one and increases after a non-materialistic CEO replaces a materialistic CEO. Consistent with CEOs influencing corporate culture, we find that non-CEO executives in banks with materialistic CEOs more aggressively exploited inside trading opportunities around government intervention during the financial crisis. Finally, we find that ...

REVISION: Insider Trading Restrictions and Analysts' Incentives to Follow Firms
Date Posted: Sep  07, 2017
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 domestic listed firms followed by analysts) increase after initial enforcement of insider trading laws. We find that this increase is most prominent in emerging market and non-liberalized countries.

REVISION: Financial Accounting Information, Organizational Complexity and Corporate Governance Systems
Date Posted: Sep  07, 2017
We posit that limited transparency of firms’ operations to outside investors increases demands on governance systems to alleviate moral hazard problems. We investigate how ownership concentration, directors’ and executive’s incentives, and board structure vary with: 1) earnings timeliness, and 2) organizational complexity measured as geographic and/or product line diversification. We find that ownership concentration, directors’ and executives’ equity-based incentives, and outside directors’ reputations vary inversely with earnings timeliness, and that ownership concentration, and directors’ equity-based incentives increase with firm complexity. However, board size and the percentage of inside directors do not vary significantly with earnings timeliness or firm complexity.

REVISION: What Determines Corporate Transparency?
Date Posted: Sep  07, 2017
We investigate corporate transparency, defined as the availability of firm-specific information to those outside publicly traded firms. We conceptualize corporate transparency within a country as output from a multi-faceted system whose components collectively produce, gather, validate and disseminate information. We factor analyze a range of measures capturing countries’ firm-specific information environments, isolating two distinct factors. The first factor, interpreted as financial transparency, captures the intensity and timeliness of financial disclosures, and their interpretation and dissemination by analysts and the media. The second factor, interpreted as governance transparency, captures the intensity of governance disclosures used by outside investors to hold officers and directors accountable. We investigate whether these factors vary with countries’ legal/judicial regimes and political economies. Our main multivariate result is that the governance transparency factor is ...

REVISION: An Analysis of the Relation between the Stewardship and Valuation Roles of Earnings
Date Posted: Sep  05, 2017
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 positive link between CERCs and ERCs, persistence and other agency-based determinants of CERCs from our model. We also conduct an empirical investigation of the existence of secular trends over the 1971-1995 time period in CERCs and in the importance of earnings relative to other information in explaining CEO cash compensation. In contrast to recent studies documenting declining trends in ERCs, we find no general time trend in CERCs. We find, however, a decline in the importance of earnings in ...

New: CEO Materialism and Corporate Social Responsibility
Date Posted: Jun  14, 2016
We study the role of individual CEOs in explaining corporate social responsibility (CSR) scores. We show that CEO fixed-effects explain 63% of the variation in CSR scores, a significant portion of which is attributable to a CEO’s “materialism” (relatively high luxury asset ownership). Specifically, firms led by materialistic CEOs have lower CSR scores, and increases in CEOs’ materialism are associated with declining scores. Finally, CSR scores in firms with non-materialistic CEOs are positively associated with accounting profitability. In contrast, CSR scores in firms with materialistic CEOs are unrelated to profitability on average; however this association is decreasing in CEO power.

New: Executives’ Legal Records and Insider Trading Activities
Date Posted: Jun  13, 2016
We examine how and why insider trading varies across senior executives and their firms. As predicted, the profitability of both purchases and sales are higher for “recordholder” executives (those who have a record of legal infractions), than for other “non-recordholder” executives at the same firms. The profitability of recordholder executives’ purchases and sales decrease significantly with proxies for strong information and governance environments, suggesting that recordholders have a relatively higher propensity to exploit inside information given the opportunity to do so. Finally, our classification of executives (recordholder status) can predict future returns and firm-specific information events.

REVISION: Executives’ 'Off-the-Job' Behavior, Corporate Culture, and Financial Reporting Risk
Date Posted: Mar  03, 2014
We examine how executives’ behavior outside the workplace, as measured by their ownership of luxury goods (low “frugality”) and prior legal infractions, is related to financial reporting risk. We predict and find that CEOs and CFOs with a legal record are more likely to perpetrate fraud. In contrast, we do not find a relation between executives’ frugality and the propensity to perpetrate fraud. However, as predicted, we find that unfrugal CEOs oversee a relatively loose control environment characterized by relatively high and increasing probabilities of other insiders perpetrating fraud and unintentional material reporting errors during their tenure. Further, cultural changes associated with an increase in fraud risk are more likely during unfrugal (vs. frugal) CEOs’ reign, including the appointment of an unfrugal CFO, an increase in executives’ equity-based incentives to misreport, and a decline in measures of board monitoring intensity.

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 ...

New: Capital Allocation and Timely Accounting Recognition of Economic Losses
Date Posted: Jan  04, 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 ...

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 ...

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 ...

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 ...

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 ...