Kara Wells

Assistant Professor of Accounting

I am an Assistant Professor of Accounting at Southern Methodist University. I earned my PhD in Accounting at the Leventhal School of Accounting, Marshall School of Business at the University of Southern California. I also have an MS in Finance from Villanova University and a BS in Quantitative Finance and Financial Economics from James Madison University.


My research is in empirical financial accounting, with a focus on corporate governace, investor uncertainty and accounting information, determinants and consequences of individual managers and accounting information.


Who Manages The Firm Matters: The Incremental Effect of Individual Managers on Accounting Quality

(Forthcoming at The Accounting Review)

I investigate whether individual managers have an incremental effect on firms’ accounting quality (AQ) after controlling for known determinants of AQ, time fixed effects and firm fixed effects. To identify the manager-specific effect on firm AQ, I construct a data set that tracks the movement of 907 managers across firms over the period 1992-2014. Results indicate that individual manager fixed effects explain a statistically and economically significant proportion of the cross-sectional variation in AQ, which is comparable to that of firm fixed effects. Variation in managerial attributes that impacts AQ is applied consistently as firms switch manager-type. Using a setting of exogenous CEO turnover, I find managerial idiosyncrasies impact AQ and are not merely a reflection of firms actively choosing managers with a desired combination of managerial attributes that in turn impact the variability of accruals. Overall, my study underscores the importance of individual managers in the determination of AQ.


Earnings Surprises And Uncertainty: Theory And Evidence From Option Implied Volatility

(with Bryce Schonberger and K.R. Subramanyam)

We model the effect of information surprise on market uncertainty regarding firm value. Unlike traditional rational expectations models without parametric uncertainty, where information decreases uncertainty by a constant amount, we show that uncertainty regarding information precision results in a Vshaped relation between surprise and uncertainty about firm value. In this model, small absolute surprises decrease uncertainty while large absolute surprises increase uncertainty. We test our theory by relating analysts’ earnings forecast errors to changes in option implied volatilities around earnings announcements and releases of management guidance. Our empirical analysis yields evidence consistent with the proposed relation in both settings. Our findings contribute to the literature on rational expectations, option implied volatility, and the effects of accounting information on the second moment of investors’ beliefs regarding firm value.


When Do Governance Mechanisms Matter Most?

(With Derek Horstmeyer)

We examine the interaction of internal and external firm-level governance mechanisms with industry-specific economic conditions to assess when they best serve current shareholders. We find that external governance (shareholder rights) is most valuable during industry upturns, with no differential benefit during downturns. For internal governance, we find that small boards are incrementally more valuable during upturns but that this result weakens/reverses during downturns, and inconclusive evidence regarding the state dependent value of institutional ownership. Contributions include showing: governance mechanisms have industry economic state dependent values; small boards may not always be optimal; and managers do not capture these inefficiencies through aggressive policy decisions, nor excessive compensation.


CEO Horizon Incentives And Corporate Risk Taking: Evidence From Tax Planning

(With Jim Stekelberg)

Does Accounting Information Affect Investor Uncertainty About Firm Value Around Restatements?

(With Yuri Loktionov)

Executive Homogeneity, Internal Governance, And Corporate Decisions

(With Derek Horstmeyer)


Southern Methodist University, Cox School of Business

Cost Accounting (ACC 4311) – Fall 2017 to present

Managers make numerous decisions about a firm’s daily operations, investment, and financing activities, which require timely and relevant information. A well-designed cost accounting system can provide such information to managers on an ongoing basis and can help firms choose the best strategic position, improve their operational efficiency and customer satisfaction, evaluate each department and its constituents, and ultimately maximize firm profit.


The importance of a good cost accounting system cannot be overemphasized in the current highly competitive fast-changing product market. Firms are constantly being challenged by their competitors in terms of the quality, price, and cost of products. Successful managers must understand how information on various costs is generated through a cost accounting system and must know how to trace the costs of various resources to products in order to determine the potential causes of good or bad performance, and to incorporate relevant costs in planning and decision-making to help achieve the firm’s strategic objectives.


Introduction to Managerial Accounting (ACC 2302) – Spring 2014 to Spring 2017

This course is designed to introduce students to the theory and practice of managerial accounting. It is all about decision making by managers within an organization.


At a fundamental level, this is a course about measurement. Managerial accounting is based on the theory that properly designed measurement systems can help organizations to achieve their objectives by:

1. focusing attention (i.e., facilitating the identification and investigation of problems, as well as helping managers to understand and validate the human resource, operational, marketing, and financial implications of alternate plans of action);

2. aligning decision rights, responsibilities, and reporting relationships;

3. minimizing divergence of actual results from desired results.

In other words, managerial accounting is based on the premise that measurement systems can help managers to plan, organize, and control organizational activities.


The course is intended for individuals who will make business decisions, evaluate business opportunities, and evaluate others (or be evaluated) through the use of accounting systems. Unless you understand managerial accounting, you cannot have a thorough understanding of a company’s internal operations. What you learn in this course will help you understand the operations of your future employer, and help you understand other companies you encounter in your role as competitor, consultant, or investor.


University of Southern California, Leventhal School of Accounting

Introduction to Management Accounting (BUAD 281) – Fall 2012


Email:  kewells@smu.edu
Phone: (214) 768-3183

Office: 382 Crow


Mailing address: 

Cox School of Business

Southern Methodist University
6212 Bishop Boulevard
Dallas TX 75205