In this study, I examine the relation between managerial incentives from holdings of company stock and options and stock option repricing. Specifically, given that options provide both incentives to increase risk as well as stock price, firms must be cognizant that executives may increasingly face incentives to invest in risky, negative NPV projects, as options go underwater. Repricing may serve as a mechanism to alleviate such incentives. The study examines repricing activity by firms in the U.S. gaming industry during 1993-1998. I find that, in both firm-level and executive-level analyses, risk-taking incentives from options are positively related to the incidence of executive option repricing. The results are supportive of the hypothesis that repricing assists firms in alleviating excessive risk-taking incentives of senior management.
{"title":"Managerial Risk-Taking Incentives and Executive Stock Option Repricing: A Study of Us Casino Executives","authors":"D. A. Rogers","doi":"10.2139/ssrn.303781","DOIUrl":"https://doi.org/10.2139/ssrn.303781","url":null,"abstract":"In this study, I examine the relation between managerial incentives from holdings of company stock and options and stock option repricing. Specifically, given that options provide both incentives to increase risk as well as stock price, firms must be cognizant that executives may increasingly face incentives to invest in risky, negative NPV projects, as options go underwater. Repricing may serve as a mechanism to alleviate such incentives. The study examines repricing activity by firms in the U.S. gaming industry during 1993-1998. I find that, in both firm-level and executive-level analyses, risk-taking incentives from options are positively related to the incidence of executive option repricing. The results are supportive of the hypothesis that repricing assists firms in alleviating excessive risk-taking incentives of senior management.","PeriodicalId":180033,"journal":{"name":"Journal of Accounting Abstracts","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2004-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127089896","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The financial press and accounting regulators (e.g., the SEC and FASB) have expressed concern about pressures on Internet firms to report high levels of revenue. This study verifies the association between market capitalization and revenue, and examines economic factors that potentially influence Internet company managers' decisions to adopt allegedly aggressive revenue recognition policies. Specifically, we examine factors hypothesized to influence reporting of advertising barter revenue and grossed-up sales levels. We begin by providing descriptive evidence on the use of barter and grossed-up revenue across Internet sectors. While common in some sectors, we find that use of these accounting policies is not pervasive overall. We limit our empirical analyses to Internet companies that have the opportunity to report grossed-up or advertising barter revenue. Our cross-sectional predictions are based on both external and internal incentives to maximize revenues as well as constraints that may limit management's discretion. We predict that the following factors increase the likelihood that a firm will report grossed-up and/or barter revenue: shorter time before needing additional external financing, more active individual investor interest in the firm's stock, more active pursuit of growth via acquisitions, and greater use of stock options in employee compensation. We also posit that barter transactions might be an inexpensive way for firms to evaluate the viability of future marketing or content alliances with potential partners. Finally, we predict constraints on management discretion to be related to the reputation/quality of the firm's auditor and underwriter, and the extent of management ownership. We find that firms with greater cash burn rates and higher levels of activity on Motley Fool message boards are consistently associated with barter and grossed-up revenue reporting. This suggests that the pressure to seek external funding and the extent of active individual investor interest in a firm influence Internet managers' use of allegedly aggressive revenue reporting practices. In addition, it appears that firms reporting barter revenue are more likely to enter into marketing and content alliances, suggesting the potential for future alliances may be another motivation for managers to enter into barter transactions.
{"title":"Determinants of Revenue Reporting Practices for Internet Firms","authors":"R. M. Bowen, Angela K. Davis, Shivaram Rajgopal","doi":"10.2139/ssrn.257522","DOIUrl":"https://doi.org/10.2139/ssrn.257522","url":null,"abstract":"The financial press and accounting regulators (e.g., the SEC and FASB) have expressed concern about pressures on Internet firms to report high levels of revenue. This study verifies the association between market capitalization and revenue, and examines economic factors that potentially influence Internet company managers' decisions to adopt allegedly aggressive revenue recognition policies. Specifically, we examine factors hypothesized to influence reporting of advertising barter revenue and grossed-up sales levels. We begin by providing descriptive evidence on the use of barter and grossed-up revenue across Internet sectors. While common in some sectors, we find that use of these accounting policies is not pervasive overall. We limit our empirical analyses to Internet companies that have the opportunity to report grossed-up or advertising barter revenue. Our cross-sectional predictions are based on both external and internal incentives to maximize revenues as well as constraints that may limit management's discretion. We predict that the following factors increase the likelihood that a firm will report grossed-up and/or barter revenue: shorter time before needing additional external financing, more active individual investor interest in the firm's stock, more active pursuit of growth via acquisitions, and greater use of stock options in employee compensation. We also posit that barter transactions might be an inexpensive way for firms to evaluate the viability of future marketing or content alliances with potential partners. Finally, we predict constraints on management discretion to be related to the reputation/quality of the firm's auditor and underwriter, and the extent of management ownership. We find that firms with greater cash burn rates and higher levels of activity on Motley Fool message boards are consistently associated with barter and grossed-up revenue reporting. This suggests that the pressure to seek external funding and the extent of active individual investor interest in a firm influence Internet managers' use of allegedly aggressive revenue reporting practices. In addition, it appears that firms reporting barter revenue are more likely to enter into marketing and content alliances, suggesting the potential for future alliances may be another motivation for managers to enter into barter transactions.","PeriodicalId":180033,"journal":{"name":"Journal of Accounting Abstracts","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2002-06-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114785863","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Prominent properties of distributions of differences in earnings reported by forecast data providers (FDPs), i.e., I/B/E/S, Zacks, and First Call, and Compustat drive statistical inferences drawn in extant research concerning the relative information content and value relevance of alternative reported earnings numbers (e.g., "Street" or pro forma versus GAAP earnings). These properties include, 1) the existence of an extreme negative tail in such distributions (representing cases in which Compustat earnings is below FDPs' earnings by extreme amounts), 2) a higher frequency of cases in which Compustat earnings exceed FDP earnings by small amounts than cases in which FDP earnings exceed Compustat earnings by small amounts accompanied by a high concentration of zero earnings differences, 3) systematic changes in the shape of such distributions over time attributable to the application of stable formulae for excluding items from reported earnings by the FDPs while recognition of these items by firms in the cross-section changes. Relying on knowledge of these properties we show that many statistical inferences and interpretations concerning market reliance/fixation on FDP (Street or pro forma) earnings versus Compustat (GAAP) earnings in the cross section and over time are driven by a small number of extreme negative tail observations and a regime shift in the mean earnings differences in 1990, respectively. These properties have similar impacts on inferences in the value relevance literature. Our findings highlight the value of understanding the properties of distributions of earnings differences and the composition of earnings related to these properties for identifying potential factors that can confound inferences, and for uncovering evidence that generates new lines of investigation and improves test designs.
{"title":"Differences in Commercial Database Reported Earnings: Implications for Empirical Research","authors":"Jeffery Abarbanell, Reuven Lehavy","doi":"10.2139/ssrn.228918","DOIUrl":"https://doi.org/10.2139/ssrn.228918","url":null,"abstract":"Prominent properties of distributions of differences in earnings reported by forecast data providers (FDPs), i.e., I/B/E/S, Zacks, and First Call, and Compustat drive statistical inferences drawn in extant research concerning the relative information content and value relevance of alternative reported earnings numbers (e.g., \"Street\" or pro forma versus GAAP earnings). These properties include, 1) the existence of an extreme negative tail in such distributions (representing cases in which Compustat earnings is below FDPs' earnings by extreme amounts), 2) a higher frequency of cases in which Compustat earnings exceed FDP earnings by small amounts than cases in which FDP earnings exceed Compustat earnings by small amounts accompanied by a high concentration of zero earnings differences, 3) systematic changes in the shape of such distributions over time attributable to the application of stable formulae for excluding items from reported earnings by the FDPs while recognition of these items by firms in the cross-section changes. Relying on knowledge of these properties we show that many statistical inferences and interpretations concerning market reliance/fixation on FDP (Street or pro forma) earnings versus Compustat (GAAP) earnings in the cross section and over time are driven by a small number of extreme negative tail observations and a regime shift in the mean earnings differences in 1990, respectively. These properties have similar impacts on inferences in the value relevance literature. Our findings highlight the value of understanding the properties of distributions of earnings differences and the composition of earnings related to these properties for identifying potential factors that can confound inferences, and for uncovering evidence that generates new lines of investigation and improves test designs.","PeriodicalId":180033,"journal":{"name":"Journal of Accounting Abstracts","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2002-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117351053","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Management incentives have been suggested as a factor affecting the usefulness of reported earnings for readers of financial statements. Prior research has demonstrated that the quality of earnings has been associated with levels of managerial ownership (Warfield, Wild and Wild (1995)), audit quality using Australian data (Gul, Lynn, and Tsui (2002), and compensation mix in 0%-5% manager owned firms (Behn, Nagy, and Riley (2000). We extend this line of research by theoretically demonstrating and empirically examining whether companies, with any level of stock ownership, can use higher levels of stock remuneration relative to annual salary and bonus compensation to enhance the informativeness of accounting information. We proxy for earnings informativeness by using the earnings-returns relationship and three different earnings management techniques: discretionary accruals, R&D investments and advertising expenditures. By using a more precise and theoretically derived stock compensation ratio on a sample of all publicly traded firms and using different measures of earnings management techniques, we provide additional, more robust, empirical evidence that the stock compensation ratio (SCR), not just ownership levels, can improve the informativeness of earnings. Our findings suggest that higher levels of the SCR are associated with improvements in the usefulness of earnings and with reductions in the magnitude of discretionary accrual adjustments, advertising expenditures, and to a lesser extent, research and development investments. This study contributes to the extant managerial compensation and earnings quality literature by enhancing our understanding of the financial disclosure environment by providing empirical evidence for specific factors that improve the usefulness of earnings disclosures.
管理层激励被认为是影响财务报表读者报告收益有用性的一个因素。先前的研究表明，盈余质量与管理层持股水平(Warfield, Wild and Wild(1995))、使用澳大利亚数据的审计质量(Gul, Lynn, and Tsui(2002))以及0%-5%的经理持股公司的薪酬组合(Behn, Nagy, and Riley(2000))有关。我们通过理论论证和实证检验来扩展这条研究路线，无论公司的持股水平如何，是否可以使用相对于年薪和奖金的更高水平的股票报酬来增强会计信息的信息量。我们通过使用盈余-回报关系和三种不同的盈余管理技术:可自由支配的应计利润、研发投资和广告支出来代理盈余信息。通过在所有上市公司的样本上使用更精确和理论上推导的股票薪酬比率，并使用不同的盈余管理技术措施，我们提供了额外的，更强大的经验证据，证明股票薪酬比率(SCR)，而不仅仅是所有权水平，可以提高盈余的信息性。我们的研究结果表明，较高的SCR水平与收益有用性的改善、可自由支配的应计调整幅度、广告支出以及在较小程度上的研发投资的减少有关。本研究通过为提高盈余披露有用性的具体因素提供经验证据，增强了我们对财务披露环境的理解，从而对现有的管理层薪酬和盈余质量文献做出了贡献。
{"title":"The Association between Stock/Compensation Mix and Earnings Usefulness","authors":"Bruce Behn, Albert L. Nagy, Richard A. Riley","doi":"10.2139/ssrn.301659","DOIUrl":"https://doi.org/10.2139/ssrn.301659","url":null,"abstract":"Management incentives have been suggested as a factor affecting the usefulness of reported earnings for readers of financial statements. Prior research has demonstrated that the quality of earnings has been associated with levels of managerial ownership (Warfield, Wild and Wild (1995)), audit quality using Australian data (Gul, Lynn, and Tsui (2002), and compensation mix in 0%-5% manager owned firms (Behn, Nagy, and Riley (2000). We extend this line of research by theoretically demonstrating and empirically examining whether companies, with any level of stock ownership, can use higher levels of stock remuneration relative to annual salary and bonus compensation to enhance the informativeness of accounting information. We proxy for earnings informativeness by using the earnings-returns relationship and three different earnings management techniques: discretionary accruals, R&D investments and advertising expenditures. By using a more precise and theoretically derived stock compensation ratio on a sample of all publicly traded firms and using different measures of earnings management techniques, we provide additional, more robust, empirical evidence that the stock compensation ratio (SCR), not just ownership levels, can improve the informativeness of earnings. Our findings suggest that higher levels of the SCR are associated with improvements in the usefulness of earnings and with reductions in the magnitude of discretionary accrual adjustments, advertising expenditures, and to a lesser extent, research and development investments. This study contributes to the extant managerial compensation and earnings quality literature by enhancing our understanding of the financial disclosure environment by providing empirical evidence for specific factors that improve the usefulness of earnings disclosures.","PeriodicalId":180033,"journal":{"name":"Journal of Accounting Abstracts","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2002-01-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132914784","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper reports analyses of data obtained using a field‐based questionnaire in which 253 auditors from one Big 5 firm recalled and described 515 specific experiences they had with clients who they believe were attempting to manage earnings. This approach enables us to analyze separately managers' decisions about how to attempt earnings management and auditors' decisions about whether to prevent earnings management by requiring adjustment of the financial statements. Our results indicate that managers are more likely to attempt earnings management, and auditors are less likely to adjust earnings management attempts, which are structured (not structured) with respect to precise (imprecise) standards. We also find that managers are more likely to make attempts that increase current‐year income, but auditors are more likely to require that those attempts be adjusted, that managers are more likely to make attempts that decrease current‐year income with unstructured transactions and/or when standards are imp...
{"title":"Evidence from Auditors About Managers' and Auditors' Earnings-Management Decisions","authors":"M. Nelson, John A. Elliott, R. L. Tarpley","doi":"10.2139/ssrn.294688","DOIUrl":"https://doi.org/10.2139/ssrn.294688","url":null,"abstract":"This paper reports analyses of data obtained using a field‐based questionnaire in which 253 auditors from one Big 5 firm recalled and described 515 specific experiences they had with clients who they believe were attempting to manage earnings. This approach enables us to analyze separately managers' decisions about how to attempt earnings management and auditors' decisions about whether to prevent earnings management by requiring adjustment of the financial statements. Our results indicate that managers are more likely to attempt earnings management, and auditors are less likely to adjust earnings management attempts, which are structured (not structured) with respect to precise (imprecise) standards. We also find that managers are more likely to make attempts that increase current‐year income, but auditors are more likely to require that those attempts be adjusted, that managers are more likely to make attempts that decrease current‐year income with unstructured transactions and/or when standards are imp...","PeriodicalId":180033,"journal":{"name":"Journal of Accounting Abstracts","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2001-12-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128232881","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Public firms that place equity privately experience positive announcements effects, with negative post-announcement stock-price performance. This finding is inconsistent with the underreaction hypothesis. Instead, it suggests that investors are overoptimistic about the prospects of firms issuing equity, regardless of the method of issuance. Further, in contrast to public offerings, private issues follow periods of relatively poor operating performance. Thus, investor overoptimism at the time of private issues is not due to the behavioral tendency to overweight recent experience at the expense of long-term averages.
{"title":"Long-Run Performance Following Private Placements of Equity","authors":"M. Hertzel, M. Lemmon, James S. Linck, Lynn Rees","doi":"10.2139/ssrn.168189","DOIUrl":"https://doi.org/10.2139/ssrn.168189","url":null,"abstract":"Public firms that place equity privately experience positive announcements effects, with negative post-announcement stock-price performance. This finding is inconsistent with the underreaction hypothesis. Instead, it suggests that investors are overoptimistic about the prospects of firms issuing equity, regardless of the method of issuance. Further, in contrast to public offerings, private issues follow periods of relatively poor operating performance. Thus, investor overoptimism at the time of private issues is not due to the behavioral tendency to overweight recent experience at the expense of long-term averages.","PeriodicalId":180033,"journal":{"name":"Journal of Accounting Abstracts","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2001-12-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114554897","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Assuming that the problem of corporate tax shelters is as serious as some claim, this article suggests searching for a solution with the same characteristics as section 469 of the Internal Revenue Code (the passive activity loss limitations) - a broad, reasonably clear, outcomes-oriented rule that is unaffected by taxpayer purpose or intent, or the other elements making up the taxpayer's transaction. One possible solution is enactment of an "anti-abuse" rule which denies a particular tax result if no sensible legislator would have approved of the result at the time the statute was drafted. The uncertainty of such a rule, however, would likely undermine its ability to be an effective deterrent to corporate tax shelters. The other possible solution explored in this article, which deserves further consideration, is to tax public corporations on their income reported for financial accounting purposes, as adjusted by tax rules authorizing specific deviations from that base. This solution should eliminate an entire class of shelter transactions. It may also greatly simplify the law and provide much needed transparency to the process of determining corporate income tax liabilities.
{"title":"Getting Serious About Corporate Tax Shelters: Taking a Lesson from History","authors":"G. Yin","doi":"10.2139/SSRN.269133","DOIUrl":"https://doi.org/10.2139/SSRN.269133","url":null,"abstract":"Assuming that the problem of corporate tax shelters is as serious as some claim, this article suggests searching for a solution with the same characteristics as section 469 of the Internal Revenue Code (the passive activity loss limitations) - a broad, reasonably clear, outcomes-oriented rule that is unaffected by taxpayer purpose or intent, or the other elements making up the taxpayer's transaction. One possible solution is enactment of an \"anti-abuse\" rule which denies a particular tax result if no sensible legislator would have approved of the result at the time the statute was drafted. The uncertainty of such a rule, however, would likely undermine its ability to be an effective deterrent to corporate tax shelters. The other possible solution explored in this article, which deserves further consideration, is to tax public corporations on their income reported for financial accounting purposes, as adjusted by tax rules authorizing specific deviations from that base. This solution should eliminate an entire class of shelter transactions. It may also greatly simplify the law and provide much needed transparency to the process of determining corporate income tax liabilities.","PeriodicalId":180033,"journal":{"name":"Journal of Accounting Abstracts","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2001-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130723125","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Unquestionably, before the advent of the personal computer, modeling the impacts of inflation in investment appraisal was an enormous task. Currently, with the widespread availability of personal computers, conducting investment appraisal by constructing financial statements with nominal prices is a straightforward and simple task. In this paper, we would like to persuade the reader (if indeed there is need for persuasion) that conducting investment appraisal based on financial statements with real prices is potentially misleading and under certain circumstances, the adverse effects of inflation could result in the selection of 'bad' projects. The paper is organized as follows. In Section One, we discuss some of the apparent reasons why the real prices approach persists in investment appraisal. In Section Two, we review briefly some of the main impacts of inflation and use simple numerical examples to illustrate the ideas. In Section Three, we combine all of the previous examples into a single numerical example and use sensitivity and scenario analyses to examine the impacts of inflation on the NPV of the project. First, we conduct a simple sensitivity analysis of the NPV of the project with the expected inflation rate. Second, we conduct a detailed sensitivity analysis of the PV of each line item in the FCF statement and identify the specific effects of inflation. We show clearly why the results from the real prices approach are incorrect and explain the reasons for the inadequacy of the real prices method. Note that the sensitivity analysis is unrealistic because it assumes that the same inflation rate will occur for all the years. In Section Four, we redo the analysis with different scenarios for the expected inflation rates. Scenario analysis is extremely flexible. For example, for one scenario, we can specify that the expected inflation rate is 8% for two years and 10% for the next three years.
{"title":"Modeling the Impacts of Inflation in Investment Appraisal","authors":"Joseph Tham, Ignacio Vélez-Pareja","doi":"10.2139/ssrn.295060","DOIUrl":"https://doi.org/10.2139/ssrn.295060","url":null,"abstract":"Unquestionably, before the advent of the personal computer, modeling the impacts of inflation in investment appraisal was an enormous task. Currently, with the widespread availability of personal computers, conducting investment appraisal by constructing financial statements with nominal prices is a straightforward and simple task. In this paper, we would like to persuade the reader (if indeed there is need for persuasion) that conducting investment appraisal based on financial statements with real prices is potentially misleading and under certain circumstances, the adverse effects of inflation could result in the selection of 'bad' projects. The paper is organized as follows. In Section One, we discuss some of the apparent reasons why the real prices approach persists in investment appraisal. In Section Two, we review briefly some of the main impacts of inflation and use simple numerical examples to illustrate the ideas. In Section Three, we combine all of the previous examples into a single numerical example and use sensitivity and scenario analyses to examine the impacts of inflation on the NPV of the project. First, we conduct a simple sensitivity analysis of the NPV of the project with the expected inflation rate. Second, we conduct a detailed sensitivity analysis of the PV of each line item in the FCF statement and identify the specific effects of inflation. We show clearly why the results from the real prices approach are incorrect and explain the reasons for the inadequacy of the real prices method. Note that the sensitivity analysis is unrealistic because it assumes that the same inflation rate will occur for all the years. In Section Four, we redo the analysis with different scenarios for the expected inflation rates. Scenario analysis is extremely flexible. For example, for one scenario, we can specify that the expected inflation rate is 8% for two years and 10% for the next three years.","PeriodicalId":180033,"journal":{"name":"Journal of Accounting Abstracts","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2001-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124161529","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
An important goal of accounting research is to provide evidence that improves the analysis of financial statements for predicting future profitability. Research (Sloan 1996; Xie 2001) has found that (1) the persistence of earnings performance depends on the proportions of the cash and accrual components and that (2) a market inefficiency results from the failure of investors to fully appreciate the implications of cash flows and accruals for future earnings performance. In this study we investigate whether these results with respect to accruals can be generalized to another form of growth in net operating assets. We find that growth in long-term net operating assets, like accruals, has a negative association with one-year-ahead return on assets. We also find that the negative associations of both forms of growth (accruals and growth in long-term net operating assets) to one-year-ahead return on assets are attributable to the effect of growth on the denominator of return on assets. Furthermore, we find that the apparent market mispricing of accruals applies to growth in long-term net operating assets and that the severity of the mispricing does not significantly differ between the components of growth. Thus, the results suggest that the accrual anomaly documented in Sloan (1996) is a subset of a larger anomaly with respect to a general market mispricing of growth in net operating assets. Statement Analysis, Market Mispricing
{"title":"Accrued Earnings and Growth: Implications for Earnings Persistence and Market Mispricing","authors":"P. M. Fairfield, S. Whisenant, T. Yohn","doi":"10.2139/ssrn.249311","DOIUrl":"https://doi.org/10.2139/ssrn.249311","url":null,"abstract":"An important goal of accounting research is to provide evidence that improves the analysis of financial statements for predicting future profitability. Research (Sloan 1996; Xie 2001) has found that (1) the persistence of earnings performance depends on the proportions of the cash and accrual components and that (2) a market inefficiency results from the failure of investors to fully appreciate the implications of cash flows and accruals for future earnings performance. In this study we investigate whether these results with respect to accruals can be generalized to another form of growth in net operating assets. We find that growth in long-term net operating assets, like accruals, has a negative association with one-year-ahead return on assets. We also find that the negative associations of both forms of growth (accruals and growth in long-term net operating assets) to one-year-ahead return on assets are attributable to the effect of growth on the denominator of return on assets. Furthermore, we find that the apparent market mispricing of accruals applies to growth in long-term net operating assets and that the severity of the mispricing does not significantly differ between the components of growth. Thus, the results suggest that the accrual anomaly documented in Sloan (1996) is a subset of a larger anomaly with respect to a general market mispricing of growth in net operating assets. Statement Analysis, Market Mispricing","PeriodicalId":180033,"journal":{"name":"Journal of Accounting Abstracts","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2001-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123772047","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Spanish convertible bonds are different from the American convertible bonds. First, the conversion price is not fixed in pesetas, but is defined as a percentage discount off the average share price over a number of days before conversion. Second, the conversion option can be exercised only at a few (usually two or three) different dates. Third, the first conversion opportunity is usually only two or three months after the subscription (issue) date. These characteristics allow us to say that convertible bonds in Spain have been used for "Back Door" equity financing. In fact, more than 80% of the convertibles were converted. In the period 1984 to 1996, 290 issues of convertibles accounted for $20 billion. In this period, companies issued more convertibles than new shares ($19 billion). Several formulas to value Spanish convertible bonds are derived using option theory. Convertibles have been undervalued by an average of 21.6% on average. The expropriation effect in the period 1984 to 1995 accounts for $1.15 billion.
{"title":"Convertibles in Spain: An Example of 'Back Door' Equity Financing","authors":"Pablo Fernández","doi":"10.2139/ssrn.290721","DOIUrl":"https://doi.org/10.2139/ssrn.290721","url":null,"abstract":"Spanish convertible bonds are different from the American convertible bonds. First, the conversion price is not fixed in pesetas, but is defined as a percentage discount off the average share price over a number of days before conversion. Second, the conversion option can be exercised only at a few (usually two or three) different dates. Third, the first conversion opportunity is usually only two or three months after the subscription (issue) date. These characteristics allow us to say that convertible bonds in Spain have been used for \"Back Door\" equity financing. In fact, more than 80% of the convertibles were converted. In the period 1984 to 1996, 290 issues of convertibles accounted for $20 billion. In this period, companies issued more convertibles than new shares ($19 billion). Several formulas to value Spanish convertible bonds are derived using option theory. Convertibles have been undervalued by an average of 21.6% on average. The expropriation effect in the period 1984 to 1995 accounts for $1.15 billion.","PeriodicalId":180033,"journal":{"name":"Journal of Accounting Abstracts","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2001-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114608935","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
京公网安备 11010802042870号
京ICP备2023020795号-1
扫码关注我们
求助内容：
应助结果提醒方式：