The Usefulness of Direct and Indirect Cash Flow Disclosures

We investigate the ability of disclosed operating cash flow and indirect accruals components to explain annual returns for a sample of Australian firms. Consistent with claims made by accounting standard setters, we find evidence of significant explanatory power for disclosed operating cash flow components beyond aggregate operating cash flows when they also have significant incremental predictive power for future (one year ahead) operating cash flows. Accrual components also have incremental explanatory power for returns. In addition, we find evidence of significant explanatory power for operating cash flow components beyond estimates of the components (based on other financial statement disclosures) for firms with large differences between disclosed and estimated components.     

Market Effects of Recognition and Disclosure

Our recognition and disclosure model reveals that price informativeness is determined by the interaction of the qualities of three information sources—the recognized amount, the disclosed information, and the information revealed by price—and accounting expertise acquisition. It also reveals that recognition of an accounting amount alters each of these, thereby affecting price informativeness. Perhaps surprisingly, we find that recognition of a highly unreliable accounting amount, rather than simply disclosing it, can result in greater price informativeness. Likewise, recognition of a highly reliable amount can result in lower price informativeness. Our findings suggest that, because of the effects of aggregation, basing recognition decisions on reliability alone is too simplistic. Reliability relative to relevance is key, not reliability per se. We also find that recognition and disclosure affect the coefficients in a regression of price on accounting amounts.     

Profit distribution management by Islamic banks: An empirical investigation

The objective of this paper is to ascertain whether Islamic banks do in fact manage profit distributions and if so, what factors are associated with the extent of profit distribution management. The results suggest that most Islamic banks manage profit distributions, with the extent of profit distribution directly related to religiosity, financial development, asset composition, and existence of discretionary reserves, while it is inversely related to market familiarity with Islamic banking, market concentration, depositor funding reliance and the age of the Islamic bank.     

Predicting the Failure of Developmental Gold Mining Projects

This paper investigates firm‐level financial and non‐financial information and their association with project failure for a sample of pre‐production gold development firms. Pre‐revenue generating ‘single project’ mining companies are chosen, since project failure is synonymous with company failure for these firms. The setting is interesting due to the high information asymmetry and limitations of the GAAP‐based Altman Z‐score in this context. A definition of project failure is applied and both financial and non‐financial predictors are compared. Failure is driven by whether the deposit is open pit or underground, and whether the cash cost of production is disclosed at feasibility completion.     

What do accruals tell us about future cash flows?

Our model, which is adapted from Feltham and Ohlson (Contemp Account Res 11:689–731, 1995) and Ohlson (Contemp Account Res 11:661–687, 1995) and extends Dechow and Dichev (Account Rev 77:35–59, 2002), characterizes the information about future cash flows reflected in accruals. It reveals investors can extract from accruals information about next period’s economic factor and the transitory part of one component of next period’s cash flow. The extent to which each accrual provides this information depends on whether the accrual aligns future or past cash flows and current period economics and whether it relates to the current or prior period. Thus each type of accrual has a different coefficient in valuation and forecasting cash flows or earnings. Each coefficient combines an information weight reflecting the information that accrual type provides and a multiple reflecting how that information is used in valuation and cash flow and earnings forecasting. The empirical evidence supports our main insight, namely that partitioning accruals based on their role in cash-flow alignment increases their ability to forecast future cash flows and earnings and explain firm value.     

Temporal variance of revealed preference on-street parking price elasticity

This paper utilises revealed-preference parking trend data from parking meters ex ante and ex post of a general 50% price increase in the hourly cost of on-street parking to estimate the on-street parking price elasticity of demand in an area of Dublin, Ireland. Estimates are presented for the aggregate price elasticity of demand level and individual estimates for specific time periods and days of the week. In terms of reduced parking frequency, the average price elasticity of demand reported is −0.29. Daily average estimates are consistent, with one notable exception being Thursday, a ‘late night shopping’ day for which a lower price sensitivity is reported. Morning periods are also shown to be more responsive than other time periods in the test area, indicating some potential for influencing morning inbound peak traffic levels.     

Capital Markets Research And The Goodwill Debate

This paper provides a review of capital markets research relevant to the goodwill accounting debate. Results indicate that the reported goodwill asset under United States GAAP is associated with share values, but there is no clear evidence of a similar association for goodwill amortisation. Similarly, there is no clear evidence of a competitive disadvantage associated with the requirement to amortise goodwill.     

Global Harmonisation of Accounting Standards: What Research into Capital Markets Tells Us

There is strong evidence that current levels of accounting diversity are reflected in various dimensions of sharemarket activity. However, there is little available research to help us assess the potential effects of accounting hamonisation on the ASX and its participants. Moreover, the available indications suggest that the answers will not be simple, and not always in accord with some of the arguments that are heard in the hamonisation debate.     

Capital gains taxes and the market response to public announcements in an indexation-based tax regime

This paper addresses the impact of capital gains taxes on the market price and trading volume response to public announcements in an indexation-based tax regime. Our analysis indicates that indexation makes share prices more responsive to public announcements. Moreover, ‘over responsiveness’ induces negative correlation between short-term price changes around the public announcement and subsequent long-term price movements. This effect is greater when anticipated inflation is higher. Our analysis also indicates that trading volume is increasing in price changes around the public announcement.     

Scale Effects in Capital Markets-Based Accounting Research

Abstract:  Based on data simulated using a modified Ohlson (1995) valuation model, we investigate effects on inferences of five potential scale-related effects: multiplicative and additive omitted scale factors, scale-varying coefficients, survivorship, and heteroscedasticity. We find that diagnostics identified in prior research are not successful in detecting or distinguishing these scale effects. Thus, we investigate the effectiveness at mitigating scale effects of six specifications of regressions of equity market value on equity book value and earnings: undeflated, share-deflated, equity book value-deflated, lagged price-deflated, returns, and equity market value-deflated. For each specification, we compare frequency of correct rejection that the coefficients equal zero, coefficient bias and absolute error, and regression explanatory power. We find that share-deflated and undeflated specifications generally perform the best, regardless of the type of scale effect.