Impact of earnings performance on price‐sensitive disclosures under the Australian continuous disclosure regime

This study examines the relation between accounting earnings and the frequency of price‐sensitive corporate disclosure under Australia's statutory continuous disclosure requirements. Despite low litigation threats and excepting loss‐making firms, results show that firms with earnings declines (bad news) are more likely to make continuous disclosure than firms with earnings increases (good news). This suggests that market forces and regulators’ scrutiny are sufficient to induce a ‘bad news’ disclosure bias. This study also examines the ‘materiality’ requirement under the continuous disclosure requirements and finds a positive relation between disclosure frequency and the magnitude of earnings news. The earnings–return correlation is positively associated with disclosure frequency for the financial services industry.     

Intangible assets,IFRS and analysts’ earnings forecasts

We investigate whether the adoption of International Financial Reporting Standards (IFRS) in 2005 by Australian firms has been associated with a loss of potentially useful information about intangible assets. We find that the negative association between the accuracy and dispersion of analysts’ earnings forecasts and aggregate reported intangibles previously documented by Matolcsy and Wyatt (2006 ) becomes stronger subsequent to IFRS adoption, primarily for firms with high levels of underlying intangible assets. Our result is largely attributable to reported goodwill, rather than other intangible assets, suggesting that the impairment approach to goodwill valuation required by IFRS conveys more useful information than does the former straight‐line amortization approach. When we investigate a sub‐sample of firms that report lower intangibles under IFRS than under the prior Australian GAAP, we do find some evidence consistent with a loss of useful information relating to intangibles.     

IFRS adoption and analysts’ earnings forecasts: Australian evidence

We study 145 large listed Australian firms to explore the impact of international financial reporting standards (IFRS) adoption on the properties of analysts’ forecasts and the role of firm disclosure about IFRS impact. We find that analyst forecast accuracy improves, and there is no significant change in dispersion in the adoption year, suggesting that analysts coped effectively with transition to IFRS. However, we do not observe the expected relationship between firms’ IFRS impact disclosures in their financial statements issued at the end of the transition year with forecast error and dispersion in the adoption year. The results question the timeliness and usefulness of financial statement disclosure, even in a setting where disclosure was mandated by accounting standards (AASB 1047 and AASB 1) and firms had strong incentives to provide information to analysts.     

Disentangling Managers’ and Analysts’ Non‐GAAP Reporting

Researchers frequently proxy for managers’ non‐GAAP disclosures using performance metrics available through analyst forecast data providers (FDPs), such as I/B/E/S. The extent to which FDP‐provided earnings are a valid proxy for managers’ non‐GAAP reporting, however, has been debated extensively. We explore this important question by creating the first large‐sample data set of managers’ non‐GAAP earnings disclosures, which we directly compare to I/B/E/S data. Although we find a substantial overlap between the two data sets, we also find that they differ in systematic ways because I/B/E/S (1) excludes managers’ lower quality non‐GAAP numbers and (2) sometimes provides higher quality non‐GAAP measures that managers do not explicitly disclose. Our results indicate that using I/B/E/S to identify managers’ non‐GAAP disclosures significantly underestimates the aggressiveness of their reporting choices. We encourage researchers interested in managers’ non‐GAAP reporting to use our newly available data set of manager‐disclosed non‐GAAP metrics because it more accurately captures managers’ reporting choices.     

Role of corporate governance in mitigating the selective disclosure of executive stock option information

We examine the nature and extent of statutory executive stock option disclosures by Australian listed companies over the 2001–2004 period, and the influence of corporate governance mechanisms on these disclosures. Our results show a progressive increase in overall compliance from 2001 to 2004. However, despite the improved compliance, the results reveal managements’ continued reluctance to disclose more sensitive executive stock option information. Factors associated with good internal governance, including board independence, audit committee independence and effectiveness, and compensation committee independence and effectiveness are found to contribute to improved compliance. Similarly, certain external governance factors are associated with improved disclosure, including external auditor quality, shareholder activism (as proxied by companies identified as poor performers by the Australian Shareholders’ Association) and regulatory intervention.     

Exploring attitudes to financial reporting in the Australian not‐for‐profit sector

The current level of satisfaction among different stakeholders about the current approaches and practises of financial reporting of not‐for‐profit (NFP) entities is underexplored ( Christensen and Mohr, 2003 ; Lee, 2004 ; Gray et al., 2006 ; Parker, 2007 ). This paper uses content analysis to examine submissions to the 2008 Australian Senate Economics Standing Committee for its inquiry into the disclosure regimes of charities and NFP organisations, which aimed to explore attitudes about financial reporting in the NFP sector. Financial reporting is viewed as an important part of accountability, but the sector identifies deficiencies in the current regime in terms of consistency, efficiency and transparency. Respondents to this inquiry believed that a sector‐specific accounting standard was important. Financial reporting standards, regulations and legal structures should be uniform across the entire sector, but with some variation allowed for smaller NFPs. The cost of complying with standards was a significant issue for smaller NFPs.     

The Coordination Role of Stress Tests in Bank Risk‐Taking

We examine whether stress tests distort banks' risk‐taking decisions. We study a model in which a regulator may choose to rescue banks in the event of concurrent bank failures. Our analysis reveals a novel coordination role of stress tests. Disclosure of stress‐test results informs banks of the failure likelihood of other banks, which can reduce welfare by facilitating banks' coordination in risk‐taking. However, conducting stress tests also enables the regulator to more effectively intervene banks, coordinating them preemptively into taking lower risks. We find that, if the regulator has a strong incentive to bail out, stress tests improve welfare, whereas if the regulator's incentive to bail out is weak, stress tests impair welfare.     

Governance regulatory changes,International Financial Reporting Standards adoption,and New Zealand audit and non‐audit fees: empirical evidence

This study examines the association between overseas and New Zealand governance regulatory reforms and New Zealand companies’ audit and non‐audit fees. Our models use temporal and International Financial Reporting Standards (IFRS) indicator variables to relate the timing of the fee changes to the incidence of the overseas and local reforms. We find that audit fees increased in New Zealand over 2002–2006. Such increases associate reliably with the transition to and adoption of NZ IFRS and not with earlier overseas governance reforms. Our study also documents a decrease in non‐audit fees over the same period, but we find no IFRS effect for non‐audit fees.     

Commemorating the 50‐Year Anniversary of Ball and Brown (1968): The Evolution of Capital Market Research over the Past 50 Years

We commemorate the 50th anniversary of Ball and Brown [1968] by chronicling its impact on capital market research in accounting. We trace the evolution of various research paths that post–Ball and Brown [1968] researchers took as they sought to build on the foundation laid by Ball and Brown [1968] to create a body of research on the usefulness, timeliness, and other properties of accounting numbers. We discuss how those paths often link back to the groundwork laid and questions originally posed in Ball and Brown [1968].