Generating Solutions for Society

Does earnings management matter for strategy research?
Strategic Managment Journal, August 2025

Strategic management research often uses accounting data, despite well-known concerns that earnings management could obscure the link between actual and measured performance. We apply methods from the econometric literature on bunching to estimate that around 15 percent of firm-year observations in Compustat manipulate accounting earnings to achieve profitability. We show that cash-based performance measures are less susceptible to manipulation and that the choice of accrual versus cash-based measures “matters” for two classic strategy research questions: a decomposition of ROA variance and an analysis of persistence in firm performance. These findings underscore the importance of robustness testing and contribute to an emerging literature that reconsiders the link between theoretical constructs and empirical performance measures.

Gibbs (Purdue), Simcoe (Boston U), and Waguespack (Maryland)

• Corporate Strategy
• Organizational Culture and Change

Unlocking Forecast Quality: The Power of Material Sustainability Disclosures
Accounting and Business Research

In 2013, the Sustainability Accounting Standards Board (SASB) began releasing guidelines to identify material (or financially relevant) sustainability metrics. This study investigates the effects of material and immaterial sustainability activities on analyst forecast error and dispersion. We further examine how these effects are influenced by the issuance of stand-alone sustainability reports and the release of SASB’s material sustainability standards. Using a sample of US firms from 2005 to 2018, we find that material sustainability activities are associated with more accurate and less dispersed analyst forecasts when firms issue stand-alone sustainability reports. Among firms that do not release such reports, material sustainability activities improve forecast quality only after the initial release of the SASB standards. Immaterial sustainability activities appear to add noise to information in the financial market and confound earnings forecasts, especially during the pre-SASB period, but this confounding effect reverses in the post-SASB period. Overall, our findings provide empirical evidence that classifying and disclosing corporate sustainability activities yield economic and informational benefits in capital markets.

Sue A. Cooper PhD EA CMA MEd MBA, Visiting Associate Clinical Professor of Accounting, University of Maryland, College Park, and Jennifer Yin PhD, Professor of Accounting, University of Texas at San Antonio, and Harrison Liu PhD, Associate Professor of Accounting University of Texas at San Antonio

• ESG

User Innovation and Product Stickiness: Evidence from Video Games
Journal of Economics & Management Strategy

Prior research on user innovation fails to explain its low adoption rate and neglects its impact on increased product stickiness. To bridge these gaps, we conducted an empirical investigation into user innovations within the video game sector. Our study reveals that embracing user innovation leads to an upsurge in the number of active players for a game. Furthermore, the marginal effect of user innovations varies depending on their recency and quality, with low-quality user innovations leading to user attrition. The effect is also contingent on the stage in the product life cycle in which user innovation is adopted.

Yunfei Wang, UMD and Peng Huang, UMD

• Innovation
• Product Management