Steven Rock’s research examines how financial reporting influences people and vice versa. This research is useful for investors and anyone interested in the connection between accounting information and stock prices—how incentives influence managers reporting choices.
His research provided more convincing evidence that managers report income so as to maximize bonuses. When manager bonus plans have upper limits and lower limits, they have incentives to report earning upward into the bonus payoff range, but downward if earnings will not reach the payoff range or are above the upper limit where bonuses are not paid. The incentive to “manage” profit downward is driven by the desire to increase prospects of earning bonuses in the future. Rock’s related work earned a Notable Contribution to Management Accounting Literature Award.
Rock is currently exploring why managers use discretion in making inventory write-downs in the semiconductor industry, where inventory values generally decline. Findings suggest that there are predictable income reversals from excessive write-downs that the market does not anticipate. Rock’s research can help investors better understand this trend and therefore make wiser investment decisions.
In addition to his research, Rock also is passionate about teaching and enjoys sharing his expertise with Leeds School students. He has taught financial accounting at all levels, and recently taught a large introductory class—Accounting and Financial Analysis. “To be effective in business it is necessary that students at all levels have some fluency in the ‘language of business’. Gaining that understanding is not always easy and I tell students the first day of class that they will be challenged because I view being challenged as equated to being respected.”