I review empirical research on the relation between capital markets and financial statements.The principal sources of demand for capital markets research in accounting are fundamental analysis and valuation, tests of market efficiency, and the role of accounting numbers in contracts and the political process.The capital markets research topics of current interest to researchers include tests of market efficiency with respect to accounting information, fundamental analysis, and value relevance of financial reporting.Evidence from research on these topics is likely to be helpful in capital market investment decisions, accounting standard setting, and corporate financial

How much security is enough? No one today can satisfactorily answer this question for computer-related risks. The first generation of computer security risk modelers struggled with issues arising out of their binary view of security, ensnaring them in an endless web of assessment, disagreement, and gridlock. Even as professional risk managers wrest responsibility away from the first-generation technologists, they are still unable to answer the question with sufficient quantitative rigor. Their efforts are handicapped by a reliance on non-quantitative methodologies originally developed to address the deployment and organizational acceptance issues that plagued first-generation tools.

The fundamental goal of all good design and engineering is to create maximal value added for any given investment. There are many dimensions in which value can be assessed, from monetary profit to the solution of social problems. The benefits sought are often domain-specific, yet the logic is the same: design is an investment activity. Software economics is the field that seeks to enable significant improvements in software design and engineering through economic reasoning about product, process, program, and portfolio and policy issues. We summarize the state of the art and identify shortfalls in existing knowledge. Past work focuses largely on costs, not on benefits, thus not on value added; nor are current technical software design criteria linked clearly to value creation. We present a roadmap for research emphasizing the need for a strategic investment approach to software engineering. We discuss how software economics can lead to fundamental improvements in software design and engineering, in theory and practice. 1

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This paper introduces incomplete information and preemption into an equilibrium model of rms facing real investment decisions. The optimal investment strategy may lie anywhere between the zero-NPV trigger level and the optimal strategy of a monopolist, depending on the distribution of competitors ' costs and the implied fear of preemption. Our model implies that the equity returns of rms which hold real options and are subject to preemption will contain jumps and positive skewness.

Most of the literature on real options considers the optimal decision of a firm in isolation from competitors. In reality, however, the actions of competing firms often affect each other's investment opportunities. We develop a game model where many firms compete for a single investment opportunity. When one of the firms triggers the investment the opportunity is completely lost for the other firms. The value of the project for the firms is assumed to follow a geometric Brownian motion. The model combines game theory and the theory of irreversible investment under uncertainty. We characterize the resulting Nash equilibrium under different assumptions on the information that the firms have about each other's valuations for the project. As an example, we present a case of building a telecommunications network.

A firm's resources are difficult to identify and imitate. Firms learn about their resources by undertaking real investments and observing the outcomes. The types of real investments a firm will make depends on what the firm is expected to learn from the outcomes of these investments and the real options that are available for it to exploit in the future. We predict that firms will follow a life-cycle in which they specialize when young, diversify after some time and then either expand into a large diversified firm or focus and specialize. We explain why similar investment opportunities are valued dierently by firms, offer a possible explanation for the well-documented diversification discount, and characterize the heterogeneity in corporate investment behavior and in the market price reaction of firms' traded securities to signals of firm performance.

Bandwidth is set to become the next major commodity market. Many companies are rapidly moving into this arena. The existing telecommunications infrastructure in most of the world is adequate to deliver voice and text applications, but demand for broadband services such as streaming video and large file transfer (e.g. movies) is accelerating. The explosion in Internet use has created huge demand for telecommunications capacity. Because of the high volatility present in demand for capacity, investment decision tools are highly desirable. In this paper, traditional financial methods are applied to the problem of investment decision timing. We study the underlying driving force of the bandwidth market, and then apply real options theory to the upgrade decision problem. We study how the uncertainty and growth rate of demand for capacity a#ect the decision to upgrade. In certain cases, our results contradict the anecdotal 50% upgrade rule. We notice that sometimes it is better to wait until the maximum transmission rate of the line is nearly reached before upgrading directly to the line with the highest known transmission rate (skipping the intermediate lines). Finally, we show that a small perturbation in the revenue function leads to earlier upgrades. To the best of our knowledge, this approach has not been used previously. Consequently, we believe that this methodology can o#er insights for the telecommunications industry. Keywords--- uncertain demand for capacity, real options, telecommunications I.

0238820). All views expressed are ours and do not necessarily represent those of the funding organizations. INTERNATIONAL JOINT VENTURES AND THE VALUE OF GROWTH OPTIONS Real options theory predicts that international joint ventures (IJVs) confer valuable growth options to firms, yet there has been no direct evidence on whether firms actually capture growth option value from such investments or under what conditions. We bridge the gap between theory and evidence by empirically testing this prediction, and we also develop the theoretical arguments that an IJV’s ownership structure, product market focus, and geographic location are important contingencies affecting the value of embedded growth options. The empirical evidence confirms that IJVs do enhance firms ’ growth option values, but only under certain circumstances. Specifically, minority IJVs and diversifying IJVs contribute to growth option value, but other types of IJVs do not. The findings also challenge recent claims on the growth option value of investments in emerging economies. Key words: International joint ventures; real options theory; growth option value; international

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