Pub Date : 2011-06-01DOI: 10.1111/j.1468-5957.2011.02243.x
Konstantinos Kassimatis
Post and Levy (2005) find that investors are risk averse for losses and risk seekers for gains and that stocks which exhibit low risk in bear markets and high potential for gains in bull markets may demand a premium. The present study examines if this type of risk preference creates a premium in UK stock prices using a third-degree stochastic dominance test. We find that an arbitrage portfolio long on stocks with low past downside risk in bear markets and high past upside potential in bull markets and short on stocks with high past downside risk in bear markets and low past upside potential in bull markets generates a premium of 2.89% per month. This premium cannot be explained by the CAPM or the Fama and French 4-factor model, but it exhibits significant similarities to the momentum premium.
{"title":"Risk Aversion with Local Risk Seeking and Stock Returns: Evidence from the UK Market","authors":"Konstantinos Kassimatis","doi":"10.1111/j.1468-5957.2011.02243.x","DOIUrl":"https://doi.org/10.1111/j.1468-5957.2011.02243.x","url":null,"abstract":"Post and Levy (2005) find that investors are risk averse for losses and risk seekers for gains and that stocks which exhibit low risk in bear markets and high potential for gains in bull markets may demand a premium. The present study examines if this type of risk preference creates a premium in UK stock prices using a third-degree stochastic dominance test. We find that an arbitrage portfolio long on stocks with low past downside risk in bear markets and high past upside potential in bull markets and short on stocks with high past downside risk in bear markets and low past upside potential in bull markets generates a premium of 2.89% per month. This premium cannot be explained by the CAPM or the Fama and French 4-factor model, but it exhibits significant similarities to the momentum premium.","PeriodicalId":23644,"journal":{"name":"Wiley-Blackwell: Journal of Business Finance & Accounting","volume":"41 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2011-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81498586","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}
Pub Date : 2011-06-01DOI: 10.1111/j.1467-629X.2010.00376.x
K. Dunstan, G. Gallery, T. Truong
We examine the impact of continuous disclosure regulatory reform on the likelihood, frequency and qualitative characteristics of management earnings forecasts issued in New Zealand’s low private litigation environment. Using a sample of 720 earnings forecasts issued by 94 firms listed on the New Zealand Exchange before and after the reform (1999–2005), we provide strong evidence of significant changes in forecasting behaviour in the post-reform period. Specifically, firms were more likely to issue earnings forecasts to pre-empt earnings announcements and, in contrast to findings in other legal settings, those earnings forecasts exhibited higher frequency and improved qualitative characteristics (better precision and accuracy). An important implication of our findings is that public regulatory reforms may have a greater benefit in a low private litigation environment and thus add to the global debate about the effectiveness of alternative public regulatory reforms of corporate requirements.
{"title":"Public Regulatory Reform and Management Earnings Forecasts in a Low Private Litigation Environment","authors":"K. Dunstan, G. Gallery, T. Truong","doi":"10.1111/j.1467-629X.2010.00376.x","DOIUrl":"https://doi.org/10.1111/j.1467-629X.2010.00376.x","url":null,"abstract":"We examine the impact of continuous disclosure regulatory reform on the likelihood, frequency and qualitative characteristics of management earnings forecasts issued in New Zealand’s low private litigation environment. Using a sample of 720 earnings forecasts issued by 94 firms listed on the New Zealand Exchange before and after the reform (1999–2005), we provide strong evidence of significant changes in forecasting behaviour in the post-reform period. Specifically, firms were more likely to issue earnings forecasts to pre-empt earnings announcements and, in contrast to findings in other legal settings, those earnings forecasts exhibited higher frequency and improved qualitative characteristics (better precision and accuracy). An important implication of our findings is that public regulatory reforms may have a greater benefit in a low private litigation environment and thus add to the global debate about the effectiveness of alternative public regulatory reforms of corporate requirements.","PeriodicalId":23644,"journal":{"name":"Wiley-Blackwell: Journal of Business Finance & Accounting","volume":"155 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2011-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77122551","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}
Pub Date : 2011-04-11DOI: 10.1111/j.1467-629X.2011.00423.x
George Foster, Ron Kasznik, Baljit K. Sidhu
The relative importance of country- and industry-specified factors vis-a-vis company-specific financial-statement-based information in explaining equity valuation multiples in an international setting is examined. Both country-specific effects via previously identified variables and an indicator variable approach are analyzed. While company-specific factors are predominant in explaining cross-sectional differences in valuation, country and industry factors have sizable incremental explanatory power over them; the latter are not independent so their relative importance is influenced by how we adjust for this commonality. Using country-indicators provides larger incremental explanatory power than using country-specific factors suggesting that previously identified factors may be measured with sizeable error or omitted factors are important.
{"title":"International Equity Valuation: The Relative Importance of Country and Industry Factors Versus Company‐Specific Financial Reporting Information","authors":"George Foster, Ron Kasznik, Baljit K. Sidhu","doi":"10.1111/j.1467-629X.2011.00423.x","DOIUrl":"https://doi.org/10.1111/j.1467-629X.2011.00423.x","url":null,"abstract":"The relative importance of country- and industry-specified factors vis-a-vis company-specific financial-statement-based information in explaining equity valuation multiples in an international setting is examined. Both country-specific effects via previously identified variables and an indicator variable approach are analyzed. While company-specific factors are predominant in explaining cross-sectional differences in valuation, country and industry factors have sizable incremental explanatory power over them; the latter are not independent so their relative importance is influenced by how we adjust for this commonality. Using country-indicators provides larger incremental explanatory power than using country-specific factors suggesting that previously identified factors may be measured with sizeable error or omitted factors are important.","PeriodicalId":23644,"journal":{"name":"Wiley-Blackwell: Journal of Business Finance & Accounting","volume":"46 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2011-04-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85529110","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}
Pub Date : 2010-12-19DOI: 10.1111/j.1467-629X.2010.00397.x
Jamie Alcock, F. Finn, Kelvin Jui Keng Tan
We examine the determinants of debt maturity in the Australian capital market with the Top 400 firms listed on the Australian Securities Exchange for the period 1989–2006. We find that Australian firms not only exhibit a positive leverage–maturity relationship but also use short-term debt to signal their high quality to the market. Our results are robust to different estimation methods that control for endogeneity and error-dependence. We also find that ignoring the interaction between leverage and maturity can lead to erroneous conclusions about the support for the matching principle, the agency costs hypothesis and the transaction costs hypothesis.
{"title":"The Determinants of Debt Maturity in Australian Firms","authors":"Jamie Alcock, F. Finn, Kelvin Jui Keng Tan","doi":"10.1111/j.1467-629X.2010.00397.x","DOIUrl":"https://doi.org/10.1111/j.1467-629X.2010.00397.x","url":null,"abstract":"We examine the determinants of debt maturity in the Australian capital market with the Top 400 firms listed on the Australian Securities Exchange for the period 1989–2006. We find that Australian firms not only exhibit a positive leverage–maturity relationship but also use short-term debt to signal their high quality to the market. Our results are robust to different estimation methods that control for endogeneity and error-dependence. We also find that ignoring the interaction between leverage and maturity can lead to erroneous conclusions about the support for the matching principle, the agency costs hypothesis and the transaction costs hypothesis.","PeriodicalId":23644,"journal":{"name":"Wiley-Blackwell: Journal of Business Finance & Accounting","volume":"15 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2010-12-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"80865948","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}
Pub Date : 2010-12-15DOI: 10.1111/j.1468-5957.2011.02242.x
Gunther Gebhardt, Zoltán Novotny-Farkas
This paper examines the implications of mandatory IFRS adoption on the accounting quality of banks in twelve EU countries. Specifically, we analyse how the change in the recognition and measurement of banks’ main operating accrual item, the loan loss provision, affects income smoothing behaviour and timely loss recognition. We find that the restriction to recognize only incurred losses under IAS 39 significantly reduces income smoothing. This effect is less pronounced in countries with stricter bank supervision, widely dispersed bank ownership and for EU banks cross-listed in the US. This provides additional evidence that institutions matter in shaping financial reporting outcomes. Further, the application of the incurred loss approach results in less timely loan loss recognition implying delayed recognition of future expected losses. In the light of the ongoing financial crises it is questionable whether this is a desirable financial reporting outcome of mandatory IFRS adoption.
{"title":"Mandatory IFRS Adoption and Accounting Quality of European Banks","authors":"Gunther Gebhardt, Zoltán Novotny-Farkas","doi":"10.1111/j.1468-5957.2011.02242.x","DOIUrl":"https://doi.org/10.1111/j.1468-5957.2011.02242.x","url":null,"abstract":"This paper examines the implications of mandatory IFRS adoption on the accounting quality of banks in twelve EU countries. Specifically, we analyse how the change in the recognition and measurement of banks’ main operating accrual item, the loan loss provision, affects income smoothing behaviour and timely loss recognition. We find that the restriction to recognize only incurred losses under IAS 39 significantly reduces income smoothing. This effect is less pronounced in countries with stricter bank supervision, widely dispersed bank ownership and for EU banks cross-listed in the US. This provides additional evidence that institutions matter in shaping financial reporting outcomes. Further, the application of the incurred loss approach results in less timely loan loss recognition implying delayed recognition of future expected losses. In the light of the ongoing financial crises it is questionable whether this is a desirable financial reporting outcome of mandatory IFRS adoption.","PeriodicalId":23644,"journal":{"name":"Wiley-Blackwell: Journal of Business Finance & Accounting","volume":"40 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2010-12-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75505365","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}
Pub Date : 2010-11-08DOI: 10.1111/j.1467-629X.2010.00344.x
R. N. Francis
This study compares the relative information content of the new specifications of operating and financing cash flow as proposed jointly by the IASB and the FASB with the specifications in SFAS No. 95. A unique feature of the study is the use of the Siegel and Biddle (1994) test of relative information content. The results indicate that the proposed operating cash flow measure has less relative information content than the current measure, and the results for financing cash flow are consistent with equity investors finding no significant difference between the current and proposed measures.
{"title":"The Relative Information Content of Operating and Financing Cash Flow in the Proposed Cash Flow Statement","authors":"R. N. Francis","doi":"10.1111/j.1467-629X.2010.00344.x","DOIUrl":"https://doi.org/10.1111/j.1467-629X.2010.00344.x","url":null,"abstract":"This study compares the relative information content of the new specifications of operating and financing cash flow as proposed jointly by the IASB and the FASB with the specifications in SFAS No. 95. A unique feature of the study is the use of the Siegel and Biddle (1994) test of relative information content. The results indicate that the proposed operating cash flow measure has less relative information content than the current measure, and the results for financing cash flow are consistent with equity investors finding no significant difference between the current and proposed measures.","PeriodicalId":23644,"journal":{"name":"Wiley-Blackwell: Journal of Business Finance & Accounting","volume":"22 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2010-11-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"78720115","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}
Pub Date : 2010-11-08DOI: 10.1111/j.1467-629X.2010.00347.x
M. Turner, C. Guilding
The somewhat idiosyncratic accounting procedure of maintaining reserves to fund furniture, fittings and equipment (FFE (ii) determining FFE (iii) determining the amount assigned to FFE (iv) determining the sufficiency of FFE and (v) appraising the degree of ease with which hotel operators can draw on FF&E reserve funds. These objectives have been pursued through the analysis of qualitative field data as well as survey data collected in Australia and New Zealand. The study’s more significant findings include the determination that, consistent with the wishes of operators, maintaining cash funded FF&E reserves is the most popular approach (particularly in small hotels). It has also been found that FF&E reserves are 40 per cent underfunded. This deficiency beckons a question over whether hotel FF&E reserve accounting serves any meaningful role.
{"title":"Accounting for the Furniture, Fittings & Equipment Reserve in Hotels","authors":"M. Turner, C. Guilding","doi":"10.1111/j.1467-629X.2010.00347.x","DOIUrl":"https://doi.org/10.1111/j.1467-629X.2010.00347.x","url":null,"abstract":"The somewhat idiosyncratic accounting procedure of maintaining reserves to fund furniture, fittings and equipment (FFE (ii) determining FFE (iii) determining the amount assigned to FFE (iv) determining the sufficiency of FFE and (v) appraising the degree of ease with which hotel operators can draw on FF&E reserve funds. These objectives have been pursued through the analysis of qualitative field data as well as survey data collected in Australia and New Zealand. The study’s more significant findings include the determination that, consistent with the wishes of operators, maintaining cash funded FF&E reserves is the most popular approach (particularly in small hotels). It has also been found that FF&E reserves are 40 per cent underfunded. This deficiency beckons a question over whether hotel FF&E reserve accounting serves any meaningful role.","PeriodicalId":23644,"journal":{"name":"Wiley-Blackwell: Journal of Business Finance & Accounting","volume":"82 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2010-11-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"74528571","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}
Pub Date : 2010-08-24DOI: 10.1111/j.1467-629X.2009.00331.x
Sonia Baños-Caballero, Pedro J. García‐Teruel, P. Martínez‐Solano
This paper analyses the determinants of Cash Conversion Cycle (CCC) for small- and medium-sized firms. It has been found that these firms have a target CCC length to which they attempt to converge, and that they try to adjust to their target quickly. The results also show that it is longer for older firms and companies with greater cash flows. In contrast, firms with more growth opportunities, and firms with higher leverage, investment in fixed assets and return on assets have a more aggressive working capital policy.
{"title":"Working Capital Management in SMEs","authors":"Sonia Baños-Caballero, Pedro J. García‐Teruel, P. Martínez‐Solano","doi":"10.1111/j.1467-629X.2009.00331.x","DOIUrl":"https://doi.org/10.1111/j.1467-629X.2009.00331.x","url":null,"abstract":"This paper analyses the determinants of Cash Conversion Cycle (CCC) for small- and medium-sized firms. It has been found that these firms have a target CCC length to which they attempt to converge, and that they try to adjust to their target quickly. The results also show that it is longer for older firms and companies with greater cash flows. In contrast, firms with more growth opportunities, and firms with higher leverage, investment in fixed assets and return on assets have a more aggressive working capital policy.","PeriodicalId":23644,"journal":{"name":"Wiley-Blackwell: Journal of Business Finance & Accounting","volume":"25 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2010-08-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"78258297","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}
Pub Date : 2010-08-24DOI: 10.1111/j.1467-629X.2010.00342.x
Noel Harding
This study examines the veracity of two important, yet untested, premises underlying the interpretation of hierarchical variation in workpaper review performance. Prior research has argued that auditors at different hierarchical levels structure their knowledge of workpaper errors differently, and that these differences in knowledge structure give rise to hierarchical variation in the ability of auditors to identify mechanical and conceptual workpaper errors. This study directly examines the way in which audit firm managers, seniors and staff auditors structure their knowledge of audit workpaper errors and finds variation across hierarchical levels. These differences in knowledge structure were found to be associated with variation in workpaper review performance as they related to the identification of conceptual errors, but not, as proposed in prior research, mechanical workpaper errors. These results guide future research efforts aimed at improving workpaper review performance.
{"title":"Understanding the Structure of Audit Workpaper Error Knowledge and its Relationship with Workpaper Review Performance","authors":"Noel Harding","doi":"10.1111/j.1467-629X.2010.00342.x","DOIUrl":"https://doi.org/10.1111/j.1467-629X.2010.00342.x","url":null,"abstract":"This study examines the veracity of two important, yet untested, premises underlying the interpretation of hierarchical variation in workpaper review performance. Prior research has argued that auditors at different hierarchical levels structure their knowledge of workpaper errors differently, and that these differences in knowledge structure give rise to hierarchical variation in the ability of auditors to identify mechanical and conceptual workpaper errors. This study directly examines the way in which audit firm managers, seniors and staff auditors structure their knowledge of audit workpaper errors and finds variation across hierarchical levels. These differences in knowledge structure were found to be associated with variation in workpaper review performance as they related to the identification of conceptual errors, but not, as proposed in prior research, mechanical workpaper errors. These results guide future research efforts aimed at improving workpaper review performance.","PeriodicalId":23644,"journal":{"name":"Wiley-Blackwell: Journal of Business Finance & Accounting","volume":"191 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2010-08-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"78069588","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}
Pub Date : 2010-08-06DOI: 10.1111/j.1468-5957.2010.02230.x
Don Herrmann, Ole‐Kristian Hope, J. Payne, W. Thomas
We examine differences in quarterly earnings announcement returns as a function of meeting or missing each of three earnings thresholds – reporting a profit, reporting an increase in earnings, and meeting analysts’ forecasts. In contrast to prior research, the research design identifies the incremental market reaction to the profit and earnings increase thresholds, after controlling for the effect of meeting or missing analysts’ forecasts. Using this methodology, we find little evidence of incremental threshold effects beyond meeting analyst forecasts. In other words, zero earnings and a zero change in earnings do not appear to be “special” points that elicit a differential response by investors. Our results are robust to including a number of control variables and alternative tests. The fact that we find little evidence to support market-related incentives to manage earnings at the profit and earnings increase thresholds suggests either that managers have other incentives to manage earnings at these thresholds or that managers perceive market rewards and penalties when none exist.
{"title":"The Market's Reaction to Unexpected Earnings Thresholds","authors":"Don Herrmann, Ole‐Kristian Hope, J. Payne, W. Thomas","doi":"10.1111/j.1468-5957.2010.02230.x","DOIUrl":"https://doi.org/10.1111/j.1468-5957.2010.02230.x","url":null,"abstract":"We examine differences in quarterly earnings announcement returns as a function of meeting or missing each of three earnings thresholds – reporting a profit, reporting an increase in earnings, and meeting analysts’ forecasts. In contrast to prior research, the research design identifies the incremental market reaction to the profit and earnings increase thresholds, after controlling for the effect of meeting or missing analysts’ forecasts. Using this methodology, we find little evidence of incremental threshold effects beyond meeting analyst forecasts. In other words, zero earnings and a zero change in earnings do not appear to be “special” points that elicit a differential response by investors. Our results are robust to including a number of control variables and alternative tests. The fact that we find little evidence to support market-related incentives to manage earnings at the profit and earnings increase thresholds suggests either that managers have other incentives to manage earnings at these thresholds or that managers perceive market rewards and penalties when none exist.","PeriodicalId":23644,"journal":{"name":"Wiley-Blackwell: Journal of Business Finance & Accounting","volume":"25 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2010-08-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"90078443","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}
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