THE INVESTMENT OPPORTUNITY SET AND ACCOUNTING PROCEDURE CHOICE - PRELIMINARY EVIDENCE

This paper provides evidence on the cross-sectional relation between f irms' investment opportunities, their debt and compensation contracts, their size and financial leverage, and their accounting procedure cho ices. This evidence is important, because previous studies hypothesize that the link between firms' investment opportunities and their accou nting choices helps explain extant results on the size, debt/equity, a nd bonus plan hypotheses. However, while I find that firms' investment opportunities do affect the nature of their contracts, I also find th at the 'traditional' explanations for accounting choice are important after controlling for the effects of the investment opportunity set.