Earnings attributes and investor-protection: International evidence

This study explores the effects of investor-protection on reported earnings quality assessed on the basis of four accounting-based earnings attributes (accruals quality, earnings persistence, earnings predictability, and earnings smoothness). We test the hypothesis that favorable values of each earnings attribute (considered individually) occur in countries whose institutional characteristics provide relatively strong investor-protection. The results based on K-means cluster analysis of institutional characteristics are mixed. Earnings smoothness is less prevalent in strong investor-protection countries, as hypothesized. However both accruals quality and earnings predictability are better in countries whose institutional characteristics are relatively weak. No association is found between investor-protection and earnings persistence, except that countries with low ownership concentration appear to have high earnings persistence. The results based on regression analysis are consistent with those based on the cluster analysis. These results imply that conclusions about the impact of institutional characteristics on earnings quality depend on how earnings quality is measured.     

Corporate citizenship and earnings attributes

This study examines the association between corporate citizenship and earnings attributes. We examine four accounting-based earnings attributes, including persistence, predictability, smoothness, and accrual quality. Our sample consists of 652 public companies used to select the 100 Best Corporate Citizens (BCC) published by Business Ethics Magazine in 2001 and 2002. We find that BCC's earnings are more predictable, more persistent, and smoother than non-BCC's. Consistent with prior research findings, our results also indicate that BCC report higher subsequent accounting returns than non-BCC in the three-year period following the publication of the 2001 and 2002 BCC lists. We attribute these findings to the effort of good corporate citizens to preserve their reputation and the public's trust.     

R&D Progress, stock price volatility, and post-announcement drift: An empirical investigation into biotech firms

I investigate the effects of R&D progress on the dynamics of stock price volatility and the post announcement drift to provide insights into whether or not and how capital markets react to corporate R&D progress in the context of the biotech industry. I find both stock price volatility and the post announcement drift decrease in R&D progress. More importantly, the decrease is proportional to the increase in the drug development success rate driven by R&D progress. Findings suggest that R&D progress conveys useful risk-relevant information, and plays an important role in explaining stock price volatility change and market anomalies.     

“扭亏”公司业绩预告的“变脸”研究

本文利用单变量对比和多元Logit回归分析扭亏公司业绩预告变脸的原因。基于2002-2008年的大样本研究表明,预测难度是影响变脸概率的重要因素。具体表现在,当年中报或季报已实现扭亏的样本在预告中变脸的可能性显著低于其他样本;以微利扭亏的样本更有可能变脸;盈利持续性比较低的样本变脸的可能性比较高。另外,审计师规模或公司规模比较大的样本变脸的可能性比较低。这些研究结果有助于投资者和监管部门深入了解上市公司的业绩预告披露行为。     

Does Post-Earnings-Announcement Drift in Stock Prices Reflect A Market Inefficiency? A Stochastic Dominance Approach

This paper uses a stochastic dominance approach to test for market efficiency following earnings announcements. We find that the stocks that recently announced good earnings news stochastically dominate those that recently announced bad news. The results cast serious doubt on any belief that asset pricing model misspecifications might explain post-earnings-announcement drift.     

The impact of SFAS No. 141 on earnings predictability of merging firms: Evidence from the initial year of implementation

This study examines the impact of SFAS 141 on earnings predictability of merging firms. I expect a relative improvement in analysts’ earnings forecast accuracy for merging firms versus non-merging peers after SFAS 141 adoption. I restrict the post-SFAS 141 sample to the initial year of SFAS 141 implementation. This research design disentangles effects of SFAS No. 141 from those of SFAS No. 142. The evidence from analysis of 48 pairs of merging and matched non-merging firms is consistent with expectations and confirms the increase in earnings predictability for merging firms versus their non-merging peers post-SFAS 141. Results of additional tests suggest that earnings predictability improvement more likely follows from extended disclosure requirements and the other changes in the Purchase Method (“better purchase” issue) than from the elimination of Poolings-of-Interest (“purchase vs. pooling” issue).     

Does revenue momentum drive or ride earnings or price momentum?

This paper examines the profits of revenue, earnings, and price momentum strategies in an attempt to understand investor reactions when facing multiple information of firm performance in various scenarios. We first offer evidence that there is no dominating momentum strategy among the revenue, earnings, and price momentums, suggesting that revenue surprises, earnings surprises, and prior returns each carry some exclusive unpriced information content. We next show that the profits of momentum driven by firm fundamental performance information (revenue or earnings) depend upon the accompanying firm market performance information (price), and vice versa. The robust monotonicity in multivariate momentum returns is consistent with the argument that the market does not only underestimate the individual information but also the joint implications of multiple information on firm performance, particularly when they point in the same direction. A three-way combined momentum strategy may offer monthly return as high as 1.44%. The information conveyed by revenue surprises and earnings surprises combined account for about 19% of price momentum effects, which finding adds to the large literature on tracing the sources of price momentum.     

Cash-flow or return predictability at long horizons? The case of earnings yield

We examine the predictive ability of the aggregate earnings yield for both market returns and earnings growth by estimating variance decompositions at multiple horizons. Based on weighted long-horizon regressions, we find that most of the variation in the earnings yield is due to return predictability, with earnings growth predictability assuming a minor role. However, by using implied estimates from a first-order restricted VAR, we find an opposite predictability mix. The inconsistency in results stems from a misspecification of the restricted VAR. Using an unrestricted first-order VAR estimated by OLS, or alternatively, estimating the restricted VAR by the Projection Minimum Distance method, produces long-run variance decompositions that are substantially more similar to the decomposition obtained under the direct method. Hence, earnings yield is not fundamentally different from the dividend yield. These results suggest that the practice of analyzing long-run return and cash-flow predictability from a restricted VAR can be quite misleading.     

Do Japanese Analysts Overreact or Underreact to Earnings Announcements?

Several recent studies have used U.S. analysts' forecasts to test for underreaction or overreaction to information in earnings announcements. These tests have provided mixed results. Evidence in Mendenhall (1991) is that analysts underreact. By contrast. results in De Bondt and Thaler (1990) show overreaction by U.S. financial analysts to earnings announcements. The current study contributes to this topic by examining over/underreaction by Japanese financial analysts. Test results show that Japanese analysts do not overreact to earnings announcements, market to book ratios and sales growth. Instead. there is strong evidence that Japanese analysts underreact to earnings announcements and that their underreaction is more pronounced for firms with mostly permanent earnings. Our results also show that Japanese analysts display larger forecast biases for earnings reported under U.S. GAAP as opposed to Japanese GAAP. Finally, we find that US. analysts discount information in earnings announcements to a larger degree (relying to a greater extent on information in past prices instead) when compared to their Japanese counterparts. Further, in contrast to their Japanese counterparts, these analysts display no optimistic bias. The results above suggest that the impact of each country's unique culture and capital norms will have to be taken into account by policy makers in evaluating the feasibility of harmonization of accounting standards.     

On the nonlinear relation between product market competition and earnings quality

The literature documents conflicting results regarding the influence of product market competition on earnings quality. We extend this stream of literature by incorporating competition’s effect on both the opportunities and the incentives to manage earnings. The combination of both effects results in a nonlinear relation between product market competition and earnings quality. At low competition levels, additional information associated with one more rival helps reveal earnings irregularity and deter earnings management to a larger extent than its effect on the incentives to manage earnings, suggesting a positive relation between competition and earnings quality. At high competition levels, the latter effect dominates the former. We thus predict a positive (negative) relation between competition and earnings quality at low (high) competition levels. Consistent with our hypothesis, we document an inverted U-shaped relation between earnings quality and product market competition.     

The valuation consequences of voluntary accounting changes

Firm management typically claims that voluntary accounting method changes (VACs) are made to enhance the informativeness of earnings by better matching accounting practices with economic reality. In contrast, skeptics argue that managers adopt new accounting procedures to opportunistically manage earnings and influence their firm’s stock price. In this paper, we investigate these alternative motives for VACs. Specifically, we investigate whether VACs cause equity prices to deviate from their fundamental values in the short-term by studying the long-run stock-price performance for a sample of firms that voluntarily change accounting methods. In addition, we investigate changes in earnings informativeness by examining the behavior of earning response coefficients and the relationship between earnings and future cash flows in years surrounding the VAC event. In contrast to prior research, we find little evidence that a strategy based solely on the earnings effect of a VAC can generate abnormal returns. While we find weak evidence of post-VAC abnormal returns for extreme VACs, this result appears to be driven by the accruals anomaly documented in Sloan [Sloan, R. G. (1996). The Accounting Review, 71, 289–315]. Our evidence further suggests that earnings informativeness is not significantly altered by voluntary changes in accounting methods. Taken together, our evidence suggests the market recognizes the financial statement effects of alternative acceptable accounting methods and efficiently processes the valuation implications of VACs.

首发上市盈利预测制度变迁与公司盈余管理研究

本文研究盈利预测制度由强制性向自愿性披露的变化对首发上市公司盈余管理的影响。研究发现,在控制其他首发上市制度影响条件下,自愿性盈利预测制度使首发公司披露盈利预测的偏好明显下降,盈利预测高估程度明显降低,且激进会计政策选择偏好明显下降,公司盈余管理水平显著降低。研究表明,市场化信息披露制度改革有助于缓解公司盈余管理行为。     

How frequently should listed companies report results?

On August 17, 2018, President Trump announced that he had asked the Securities and Exchange Commission (SEC) to study whether U.S. listed companies should file interim financial statements at half-year intervals instead of on a quarterly basis. This essay examines the question underlying the President's concern: how frequently should public companies file interim statements? A review of accounting standards, regulations, and research reveals that there is (i) no agreed-upon best practice for reporting frequency, (ii) compelling evidence that analyst earnings estimates arising from interim reporting give rise to executive angst, and (iii) some evidence that lengthening reporting intervals will harm investors. The short-term implication of this essay is that readers of this journal should participate in SEC deliberation on this issue. The long-term implication is that we need to encourage accounting scholars from various disciplines to try to answer the President's question.     

区域竞争与商业银行的盈余质量——基于我国商业银行的经验证据

本文运用2002-2014年间我国商业银行的数据,实证检验了银行业区域竞争程度对商业银行盈余质量的影响。研究结果显示,商业银行的区域竞争程度越高,银行的盈余质量水平越低。进一步,从银行规模和上市情况来看,随着竞争的加剧,规模较小的商业银行以及非上市的商业银行更倾向于进行盈余管理。同时,区域竞争对商业银行盈余质量的负向影响在由小所进行审计的银行中更加显著。本文的研究不仅丰富了商业银行盈余质量的影响因素及银行竞争的经济后果等方面的文献,还能在一定程度上深化利益相关者对我国商业银行盈余质量的认识。     

Crossed-listed foreign firms' earnings informativeness, earnings management and disclosures of corporate governance information under SOX

The passage of the Sarbanes-Oxley Act (SOX) marks the beginning of the mandatory disclosure of audit-committee composition and other corporate governance information for cross-listed foreign firms. We posit that the provisions of SOX improve the effectiveness of an independent audit committee and other corporate-governance functions in monitoring the earnings quality of cross-listed foreign firms, and we use cross-listed firms' earnings informativeness and earnings management to measure earnings quality. Our findings show earnings informativeness is significantly associated with audit-committee independence as well as with board independence in the post-SOX period. In contrast, we do not find a significant association between earnings informativeness and audit-committee independence in the pre-SOX period. Our findings also show a consistently negative association between earnings management and audit-committee independence after SOX, an association that is not found in the pre-SOX period. Similarly, a negative association between earnings informativeness and the CEO duality as the chair of the board is only found in the post-SOX period. Furthermore, our results show a positive (negative) association between earnings informativeness (earnings management) and an aggregate corporate-governance score as a measure of overall corporate-governance functions in both the pre- and post-SOX periods. Our findings on the change of magnitude in the relationship between earnings informativeness (earnings management) and corporate governance suggest that the SOX provisions improve the effectiveness of cross-listed foreign firms' corporate-governance functions in monitoring the quality of accounting earnings.