Ex Ante Incentives for Earnings Management and the Informativeness of Earnings

This study examines the relation between ex ante incentives of insurance managers to engage in earnings management to meet regulatory standards and the informativeness of earnings. This study extends prior research by simultaneously examining the effects of earnings management and uncertainty about earnings as suggested by Collins and DeAngelo (1990) and Imhoff and Lobo (1992). Results from a sample of 375 quarterly earnings announcements of 41 property and liability insurers during the period 1989 to 1992 support the hypothesis that when managers' incentives for earnings management are high, earnings announcements are less informative to investors (even after controlling for uncertainty associated with exposure to large-scale catastrophes). Robustness tests suggest that our results are not attributable to firm size, time period effects, firm effects, accounting estimation error, or financial distress risk. These results are consistent with investors using publicly available information to predict P-L insurance managers' ex ante incentives to manage earnings to meet regulatory standards, and that they use this information in forming their beliefs about earnings quality.     

Valuation Implications of Investment Opportunities and Earnings Permanence

This study investigates the value-relevance of accounting earnings in the presence of investment (growth) opportunities after making two theoretical and methodological research design refinements. First, we test for the incremental effect of growth on firms earnings response coefficients after controlling for the extent of transitory earnings under the assumption that the value-relevance of earnings with respect to growth should be stronger when earnings are more permanent. Second, we perform comprehensive factor analysis using market-based and accounting-based measures to construct a composite proxy for investment opportunities. We find that firms investment opportunities and the relative permanence of current earnings affect the value-relevance of those earnings. Additionally, we find that the interaction between permanent earnings and investment opportunities produces an even stronger price response to earnings.     

Implications of Components of Income Excluded from Pro Forma Earnings for Future Profitability and Equity Valuation

Abstract:  This study addresses three research questions relating to total exclusions, special items, and other exclusions. Are each of these pro forma exclusion components forecasting irrelevant? Are each of the exclusion components value irrelevant? Are the valuation multiples on the exclusion components justified by their ability to forecast future profitability as predicted by the Ohlson (1999) model? Findings are generally consistent with the market-inefficiency results presented in Doyle et al. (2003) . Total exclusions are valued negatively by the market despite the prediction that total exclusions will be valued positively. Valuation results also suggest that stocks with positive other exclusions are overpriced.     

The Transitory Nature of Negative Earnings and the Implications for Earnings Prediction and Stock Valuation

The value-irrelevance of losses largely results from the transitory nature of losses and the diminished relationship between current and future earnings. This study develops a sales-based model of future normal earnings that is useful in analyzing future earnings prospects of loss firms. Results indicate that the developed model is associated with future earnings realizations and current stock price and is shown to be incrementally value-relevant (with book value) in price regressions for loss firms. Investigation of the relative valuation role of the prediction model provides evidence that the model is associated with equity value for loss firms expected to survive.     

Income Smoothing, Earnings Quality and Firm Valuation

Abstract:   This study argues that lower variability of earnings does not guarantee income smoothers' higher firm values. Instead, smoothers' earnings should be more value‐relevant if they are of high quality, i.e., earnings quality should be considered simultaneously. Sample firms are divided into four groups: quality earnings smoothers, quality earnings non‐smoothers, non‐quality earnings smoothers, and non‐quality earnings non‐smoothers. Value relevance of reported earnings is then studied using both the levels and the changes approaches with indicator variables. Results show quality earnings smoothers have the highest price‐earnings multiple while non‐quality non‐smoothers have the lowest price‐earnings multiple.     

Permanent and Transitory Earnings,Accounting Recording Lag,and the Earnings Coefficient

In this paper, (1) wedefine precisely the terms permanent and transitory earnings;(2) we delineate the effects of the degree of permanence andof accounting recording lag on estimates of the slope coefficientfrom a returns-earnings regression and (3) we examine the relationbetween the estimates of the earnings coefficient and observablevariables that may indicate (i) the extent to which earningsare more or less permanent, and (ii) the extent to which valuerelevant events are recorded in accounting earnings in a timelyfashion. Our main point is that attributing differences in thereturns-earnings relation to one of these effects without controllingfor the other may lead to erroneous conclusions.     

Earnings Components,Accounting Bias and Equity Valuation

In this paper we address three issues in accounting-based equity valuation: (i) How are valuation parameters related to earnings persistence and accounting conservatism when earnings components aggregate, or “add up”, in valuation? (ii) What does aggregation of earnings components in valuation imply for abnormal earnings dynamics? and (iii) When is an earnings component “irrelevant” and “core”?earnings the relevant construct for valuation? Assuming linear valuation, no-arbitrage, dividend irrelevance and clean surplus accounting, we show that when earnings components aggregate, valuation expressions and abnormal earnings dynamics are generalizations of the Ohlson (1995) model, incorporating simple adjustments for accounting conservatism. When “core” earnings are the relevant earnings construct, valuation expressions closely resemble the aggregation case, but core (abnormal) earnings replaces clean surplus (abnormal) earnings. We demonstrate that an earnings component can be irrelevant in valuation even when it is predictable.     

Fundamental Information and Monetary Policy: The Implications for Earnings and Earnings Forecasts

Building on the work of Lev and Thiagarajan (1993) and Abarbanell and Bushee (1997 and 1998) this paper tests whether market-based information including dividend yield (Fama and French, 1998), firm size (Reinganum, 1981), and the ratio of book value to market value (Fama and French, 1992) add explanatory power to accounting data for predicting future earnings. The paper also tests whether earnings changes and the predictability of those changes are conditioned on monetary policy. It is found that the ratio of book value to market value is significantly related to earnings changes. Analyst forecast accuracy differs depending on monetary policy regime, but this difference is not due to differing interpretation of fundamental signals on financial statements appearing under differing monetary policy regimes. It is also found that there is a significant relation between monetary policy, earnings changes, and the level of signals concerning earnings changes.     

Book Value,Residual Earnings,and Equilibrium Firm Value with Asymmetric Information

The residual income valuation model (RIM) by Ohlson (1995) and Feltham and Ohlson (1995) assumes that investors are risk-neutral with homogenous beliefs. Thus, the present value of expected dividends represents firm value. The purpose of the present study is to derive a RIM in a market setting of the Kyle (1985) type. Since traders are asymmetrically informed in the Kyle setting, firm value is no longer equivalent to the present value of the firm's expected dividends. In the present model, the informed investor observes a signal about the firm's profitability, which the market maker (who sets the price) is unable to observe. The market maker infers the informed investor's private signal based on the total order flow, which is an informative but noisy signal. The analysis identifies the equilibrium firm value as a linear function of current book value, current residual income, and the aggregate order flow.     

发审委身份公开、会计师事务所声誉与IPO公司盈余质量

本文以我国2000至2007年期间IPO公司财务报告为样本,以2003年我国由证监会遴选执业会计师出任股票发行审核委员会(简称发审委)委员的身份公开为背景,研究被证监会遴选执业会计师出任股票发审委委员的会计师事务所是否有动机提高审计质量,以维护来自政府认可的信任声誉。实证研究发现,这些会计师事务所审计的IPO公司财务报告的盈余质量,无论横向比较还是纵向比较均有显著提高。据此推论,来自政府认可的会计师事务所声誉与源于市场口碑的会计师事务所声誉一样,对享有这些声誉的会计师事务所提高审计质量有明显激励作用。     

Asymmetric Trading Costs Prior to Earnings Announcements: Implications for Price Discovery and Returns

We show that the cost of trading on negative news, relative to positive news, increases before earnings announcements. Our evidence suggests that this asymmetry is due to financial intermediaries reducing their exposure to announcement risks by providing liquidity asymmetrically. This asymmetry creates a predictable upward bias in prices that increases preannouncement, and subsequently reverses, confounding short‐window announcement returns as measures of earnings news and risk premia. These findings provide an alternative explanation for asymmetric return reactions to firms' earnings news, and help explain puzzling prior evidence that announcement risk premia precede the actual announcements. Our study informs methods for research centering on earnings announcements and offers a possible explanation for patterns in returns around anticipated periods of heightened inventory risks, including alternative firm‐level, industry‐level, and macroeconomic information events.     

Non-ideal Brownian motion,generalized Langevin Equation and its application to the security market

Brownian motion has been extensively applied in the field of mathematical finance in modeling the stochastic processes of returns on securities. In this paper basic and generalized Langevin Equations with memory are used to augment Brownian motion to capture the well stylized facts of the financial market that frictions and imperfect information exist. The operator method of Fourier-Laplace transform with an appropriate kernel (influence function) is used to circumvent the difficulty associated with solving a time dependent nonlinear differential Equation, and a practical computational method is proposed.From the Langevin Equation, autocorrelation of the return process and the deviation of the return distribution from an ideal Brownian motion are extracted. It is also proven that the time-dependent differential Equation has a unique solution and that it is much more generalized than a martingale Brownian motion functional.     

Accounting for Joint Ventures and Associates in Canada, UK, and US: Do US Rules Hide Information?

Abstract:   Unlike US GAAP, accounting principles in Canada and the UK require disclosure of disaggregated components of joint ventures and associates. Using comparative analysis of Canadian, UK and US data, this study investigates the potential loss of forecasting and valuation relevant information from aggregating joint venture and associate accounting amounts. Findings show that aggregating joint venture and associate investment numbers, and aggregating joint venture revenues and expenses, each leads to loss of forecasting and valuation relevant information. Thus, current US accounting principles likely mask information that financial statement users could use to predict future earnings and explain share prices.     

会计师事务所的内部治理:理论、原则及其对发展战略的含义

会计师事务所的内部治理是专业人士自主协调核心资源的过程,而品牌资源作为事务所的最核心资源,具有准公共物品属性(竞争性和非排他性),因此事务所内部治理是私人部门中出现的公共治理问题。相应地,本文引入了自主治理理论及其原则作为会计师事务所内部治理的理论基础和应用原则,并讨论了事务所内部治理原则对若干发展战略的含义。     

美、英、日财产税税制特征和对我国的启示

本文首先介绍了美国、英国、日本三国财产税的基本情况,并总结了各国财产税税制设计的特征,在此基础上,剖析了我国房地产税制现存的问题,对我国开征物业税提出了相关政策建议。     

韩国、俄罗斯、澳大利亚三国FDI税收激励政策介绍及借鉴

随着经济全球化进程的加快,中国对外投资也在不断增长。本文从中国主要对外投资国中选取了三个具有代表性的国家——韩国、俄罗斯和澳大利亚,研究其外商直接投资(FDI)税收激励政策及发展趋势,并对我国进一步扩大对外投资和调整FDI税收激励政策提出了几点看法。