Richard Lambert

Professor Lambert’s research examines topics within financial and managerial accounting. In particular, he explores how information is related to the cost of capital in firms and how firms use information for performance evaluation. His articles have appeared in The Accounting Review, Journal of Accounting Research, Journal of Accounting and Economics, Rand Journal of Economics, and Strategic Management Journal.

He teaches an elective course in financial reporting in both the MBA and WEMBA programs, the core financial accounting class in the WEMBA program, and seminars in the doctoral program. He also teaches in various executive education programs. He is the recipient of several teaching awards.

Professor Lambert previously taught at the Kellogg School at Northwestern University and the Graduate School of Business at Stanford University. He received a Ph.D. from Stanford University in 1982, an MS in Statistics from Stanford in 1980, and a B.E.E. in Electrical Engineering from the Georgia Institute of Technology in 1977.

Carlo Gallimberti, Richard A. Lambert, Liang (Jason) Xiao (Working), Bank Relations and Borrower Corporate Governance Structure.

Henry Friedman and Richard A. Lambert (Working), Performance Measurement and Long Term Investment Incentives.

Richard A. Lambert and Robert E. Verrecchia (2015), Information, Illiquidity, and Cost of Capital, Contemporary Accounting Research, 32 (2), pp. 438454.

Abstract: This paper makes two contributions to the literature. First, we extend results on the impact of asymmetric information on cost of capital to a multiasset environment. Second, we develop a transformation of the impact that allows equilibrium conditions to be expressed in closedform. Using these closedform expressions, we derive a variety of comparative static results about the behavior of cost of capital. Our results are relevant to a large empirical literature that examines the relation between various information attributes and the cost of capital.

Richard A. Lambert, Christian Leuz, Robert E. Verrecchia (2012), Information Asymmetry, Information Precision, and the Cost of Capital, Review of Finance, 16 (1), pp. 129.

Abstract: This paper examines the relation between information differences across investors (i.e., information asymmetry) and the cost of capital and establishes that with perfect competition information asymmetry makes no difference. Instead, a firm’s cost of capital is governed solely by the average precision of investors’ information. With imperfect competition, however, information asymmetry affects the cost of capital even after controlling for investors’ average precision. In other words, the capital market’s degree of competition plays a critical role for the relation between information asymmetry and the cost of capital. This point is important to empirical research in finance and accounting.

Richard A. Lambert (2010), Discussion of 'Implications for GAAP from an Analysis of Positive Research In Accounting, Journal of Accounting and Economics, (December), pp. 287295.

Abstract: This paper discusses the paper “Implications for GAAP from an Analysis of Positive Research in Accounting,” by Kothari, Ramanna, and Skinner (in press). I discuss the role that information can play in efficiently allocating capital in the economy, and I argue that the GAAP is not primarily designed with the objective of addressing “control” issues, i.e., resolving contracting problems between shareholders and managers or between shareholders and bondholders. I also discuss the impact that conservatism has on the properties of accounting numbers, and on how it affects the usefulness of these numbers in managerial incentive contracts and in contracts with bondholders.

Richard A. Lambert (2009), Discussion of On the Relation Between Expected Returns and Implied Cost of Capital, Review of Accounting Studies, (June/September), pp. 260268.

Abstract: This paper discusses the paper “On the relationship between expected returns and implied cost of capital” by Hughes, Liu, and Liu. The discussion focuses on developing the intuition behind the mathematical results and on extensions of the analysis that future research could address.

Richard A. Lambert, Christian Leuz, Robert E. Verrecchia (2007), Accounting Information, Disclosure, and the Cost of Capital, Journal of Accounting Research, (May), pp. 385420.

Abstract: In this paper we examine whether and how accounting information about a firm manifests in its cost of capital, despite the forces of diversification. We build a model that is consistent with the CAPM and explicitly allows for multiple securities whose cash flows are correlated. We demonstrate that the quality of accounting information can influence the cost of capital, both directly and indirectly. The direct effect occurs because higher quality disclosures reduce the firm's assessed covariances with other firms' cash flows, which is nondiversifiable. The indirect effect occurs because higher quality disclosures affect a firm's real decisions, which likely changes the firm's ratio of the expected future cash flows to the covariance of these cash flows with the sum of all the cash flows in the market. We show that this effect can go in either direction, but also derive conditions under which an increase in information quality leads to an unambiguous decline the cost of capital.

Richard A. Lambert, “Agency Theory and Management Accounting”. In Handbook of management of Accounting, edited by C. Chapman, A. Hopwood, M. Shields, (2006), pp. 247268

Richard A. Lambert (2004), Discussion of analysts’ treatment of nonrecurring items in street earnings and loss function assumptions in rational expectations tests on financial analysts’ earnings forecasts, Journal of Accounting and Economics, (December), pp. 205222.

Abstract: This article discusses papers by Gu and Chen, “Analysts’ Treatment of Nonrecurring Items In Street Earnings” and by Basu and Markov, “Loss Function Assumptions in Rational Expectations Tests on Financial Analysts’ Earnings Forecasts.” These two papers address issues associated with the rationality or expertise of analysts, and both papers interpret their evidence as supporting the hypothesis that analysts do a good job of processing information and forecasting earnings, results that contrast with a growing literature that is critical of the incentives and abilities of analysts. My article critiques their methods and conclusions, and suggests areas for future research.

Richard A. Lambert (2003), Discussion of Limited Attention, Information and Financial Reporting , Journal of Accounting and Economics Research, (December), pp. 387400.

Past Courses

ACCT242 FIN.STM:ANAL&REP.INCENT

In the course, students learn how to analyze firms' financial statements and disclosures to determine how a firm's particular accounting choices reflect the underlying economics of the firm. As a result, the course strengthens students' ability to use financial statements as part of an overall assessment of the firm's strategy and valuation. The course is especially useful for anyone interested in working on the buy or sell side. ,The course provides both a framework for and the tools necessary to analyze financial statements. At the conceptual level, it emphasizes that preparers and users of financial statements have different objectives and incentives. At the same time, the course is applied and stresses the use of actual financial statements. For example, students learn how to detect when firms are managing earnings and/or balance sheets. It draws heavily on real business problems and uses cases to illustrate the application of the techniques and tools.

ACCT742 PROBLEMS IN FIN REPORTIN

This intensive onesemester course focuses on how to extract and interpret information in financial statements. The course adopts a user perspective of accounting by illustrating several specific accounting issues in a decision context.

ACCT910 ACCT THEORY RESEARCH

The course includes an introduction to various analytical models and modeling/mathematical techniques that are commonly used in accounting research as well as related empirical applications.

WEMBA Core Teaching Award, 2014 WEMBA Core Teaching Award, 2013 WEMBA Core Teaching Award, 2011 WEMBA Core Teaching Award, 2009 WEMBA Core Teaching Award, 2007 Visiting Faculty – Accounting Doctoral Consortium, 2005 Visiting Faculty – Accounting Doctoral Consortium, 2004 Joseph L. McDonald Professor of Accounting, 1995 Visiting Faculty – Accounting Doctoral Consortium, 1995 Visiting Faculty – Pac 10 Doctoral Consortium, 1994 Business School Trust Faculty Fellow, 1991 Helen Kardon Moss Anvil Award for Teaching Excellence, 1989 Peat, Marwick, Main & Co, Term Associate Professor, 1988 Visiting Faculty – Accounting Doctoral Consortium, 1987 Resident Faculty – Accounting Doctoral Consortium, 1986 Charter Banks Term Associate Professor, 1985 Resident Faculty – Accounting New Faculty Consortium, 1985 Hay Group Faculty Research Fellow, 1984

Why Is Silicon Valley So Clueless About Stock Options?, Forbes 03/22/2012

Knowledge @ Wharton

Turning the Page: Books for the Holidays and Beyond, Knowledge @ Wharton 11/22/2011 ‘Finance & Accounting’ for the Rest of Us: A Conversation with Richard A. Lambert, Knowledge @ Wharton 11/18/2011 Do Shareholders Have the Clout to Rein in Excessive Executive Pay?, Knowledge @ Wharton 05/21/2003 One Way to Settle the Controversy over Stock Options: Eliminate Them, Knowledge @ Wharton 09/11/2002 Hedging Their Risk: Creating a Market for Managerial Stock Options, Knowledge @ Wharton 09/13/2001 How Employees Value (Often Incorrectly) Their Stock Options, Knowledge @ Wharton 05/23/2001 It’s Not Just How Many, But Who Gets Stock Options That Matters, Knowledge @ Wharton 03/19/2001