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JEREMIAH W. BENTLEY THEODORE E. CHRISTENSEN KURT H. GEE BENJAMIN C. WHIPPLE 《Journal of Accounting Research》2018,56(4):1039-1081
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. 相似文献
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Andreas Charitou Nikolaos Floropoulos Irene Karamanou George Loizides 《The International Journal of Accounting》2018,53(3):183-202
This study benefits by a special feature of the UK information environment which allows UK firms to disclose non-GAAP earnings on the face of the income statement to examine two interrelated questions. First, we ask whether the decision to disclose non-GAAP earnings on the face of the income statement is related to the firm's financial performance and corporate governance characteristics, and second, we investigate the effect of this disclosure decision on market liquidity. Using a dataset of 1227 hand-collected firm-year observations during the period 2006–2013, we show that better governed firms and firms with weaker financial performance are more likely to disclose non-GAAP earnings. Our evidence also suggests that this disclosure is associated with increased levels of market liquidity and the results hold after controlling for self-selection bias. We conclude that firms' decision to disclose non-GAAP earnings on the face of the income statement is more consistent with the incentive to provide information than to mislead the market. 相似文献
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This paper develops a model to analyze the impact of shareholder litigation on managers’ voluntary disclosure strategies in equity offerings. The major findings are as follows. First, under different economic parameters, the entrepreneur has two possible equilibrium disclosure strategies: full and partial disclosure. Of particular interest is the latter equilibrium, in which shareholder litigation can give the entrepreneur incentives to partially disclose her private information. Second, production decisions might be distorted by the entrepreneur’s disclosure incentives. The full disclosure equilibrium is associated with underinvestment, while overinvestment exists in the partial disclosure equilibrium. 相似文献
4.
JEREMY MICHELS 《Journal of Accounting Research》2017,55(1):3-34
Standard setters explicitly state that disclosure should not substitute for recognition in financial reports. Consistent with this directive, prior research shows that investors find recognized values more pertinent than disclosed values. However, it remains unclear whether reporting items are recognized because they are more relevant for investing decisions, or whether requiring recognition itself prompts differing behavior on the part of firms and investors. Using the setting of subsequent events, I identify the differential effect of requiring disclosure versus recognition in a setting where the accounting treatment of an item is exogenously determined. For comparable events, I find a stronger initial market response for firms required to recognize relative to firms that must disclose, although the large magnitude of the identified effect calls into question whether this difference can be attributed to accounting treatments alone. In examining various reasons for the stronger market response to recognized values, I fail to find support for the hypothesis that this difference is due to differential reliability of disclosed and recognized values. I do find some evidence that investors underreact to disclosed events, consistent with investors incurring higher processing costs when using disclosed information. 相似文献
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In this paper, we generalize Bernard and Thomas’s [Journal of Accounting and Economics 13 (1990), 305] “delayed response” hypothesis as an explanation of post‐earnings‐announcement drifts. By applying a modified version of Beveridge and Nelson’s technique of decomposing a time‐series process of earnings into permanent and temporary components, we estimate the relative weight to proxy for investor perception on the temporary component of earnings. We then provide evidence that our measure of investor misperception explains post‐announcement drifts after controlling for firm size and investor sophistication. These findings reinforce Bernard and Thomas’s [Journal of Accounting and Economics 13 (1990), 305] conjecture that less weight is placed on temporary components of earnings than would be appropriate if earnings processes were well understood, although not zero as Bernard and Thomas implicitly assumed in their portfolio formation rule. Our results also complement Ball and Bartov’s [Journal of Accounting and Economics 21 (1996), 319] result that investors partially, but not fully, adjust for serial correlation in seasonal differences. 相似文献
7.
Michael Clement Joonho Lee Kevin Ow Yong 《Journal of Business Finance & Accounting》2019,46(9-10):1123-1143
Prior research finds that there is a delayed reaction to both analyst‐based earnings surprises and random‐walk‐based earnings surprises. Focusing on the market reaction from the post‐announcement window, prior studies show that analyst‐based drift is larger than random walk‐based drift. This finding is counter‐intuitive if we believe large, sophisticated investors tend to trade on analysts’ forecast earnings news and thus react faster and more completely than smaller and less sophisticated investors react to random walk earnings news. In this study, we construct a relative measure of post‐earnings‐announcement drift (PEAD) (i.e., drift as a proportion of total market reaction to earnings news) which we refer to as the ‘drift ratio’, and we provide evidence, consistent with our intuition, that analyst‐based drift ratio is smaller (not greater) than random‐walk‐based drift ratio. We find that this difference is more pronounced in more recent periods and for firms with more sophisticated investors. Our approach to measure the PEAD is more intuitive than that in traditional PEAD literature. Our results thus complement existing research findings by utilizing the drift ratio measure to generate new insights about the drift phenomenon. 相似文献
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CIAO‐WEI CHEN 《Journal of Accounting Research》2019,57(2):391-430
This study examines whether requiring the disclosure of audited financial statements disciplines managers’ mergers and acquisitions (M&As) decisions. When an M&A transaction meets certain disclosure thresholds, the Securities and Exchange Commission (SEC) requires the public acquirer to disclose the target's audited financial statements after the merger is completed. Using hand‐collected data, I find that the disclosure of private targets’ financial statements is associated with better acquisition decisions. Furthermore, I find that this disciplining effect of disclosure is more pronounced when monitoring by outside capital providers is more difficult and costly, and when other disciplining mechanisms are weaker. Finally, these findings are robust to several alternative explanations, such as monitoring from blockholders and voluntary disclosures. In sum, the evidence suggests that the ex post mandatory disclosure of private targets’ accounting information disciplines managers’ acquisition decisions and improves acquisition efficiency. 相似文献
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The SEC prohibits the presentation of non‐GAAP measures before corresponding GAAP measures; however, a large proportion of non‐GAAP reporters present non‐GAAP EPS before GAAP EPS in their earnings announcements. This noncompliance raises questions about whether firms use prominence to highlight higher or lower quality non‐GAAP information. For firms reporting non‐GAAP EPS between 2003 and 2016, prominent non‐GAAP EPS is associated with higher quality non‐GAAP reporting. Further tests reveal that nonregulatory incentives, rather than regulatory costs, explain this relation. Specifically, prominence is associated with higher quality non‐GAAP reporting in settings where prominence is not regulated, investors ignore prominence when non‐GAAP reporting quality is lower, and the minority of firms using prominence to mislead exhibit characteristics associated with weaker investor monitoring. Overall, we provide evidence that regulatory noncompliance can reflect an intent to inform, and that most firms use prominence to highlight higher quality non‐GAAP information despite prohibitive regulation. 相似文献
10.
Lei Chen 《Journal of Business Finance & Accounting》2016,43(9-10):1444-1482
Using US‐listed Chinese firms as the setting, this paper studies a novel channel through which investors can acquire information about firms’ financial reporting quality, that is, the reports published voluntarily by short sellers. I find that short sellers tend to target firms that have financial reporting red flags and that exhibit ‘good’ operating performance and stock valuations. Targeted firms experience an average three‐day cumulative abnormal return (CAR) of ?6.4%, and ?13.6% for initial coverage of the firm, and the CARs are more negative when the reports allege more severe misconduct of the firms. Non‐targeted firms also experience losses in value following short seller reports, especially when they hire the same non‐Big 4 auditors as targeted firms and when their earnings quality is poor. In comparison, analysts fail to perform proper due diligence and are much less effective than short sellers in exposing misreporting risk in Chinese firms. 相似文献
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Transitory earnings components and the two faces of non‐generally accepted accounting principles earnings
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Non‐generally accepted accounting principles (non‐GAAP) earnings reporting has been linked with both informative and strategic incentives. We seek to disentangle these conflicting effects by examining the association between non‐GAAP earnings disclosure and transitory items in GAAP earnings, conditional on managers' reporting incentives. We report evidence of a statistically and economically significant asymmetric relation between disclosure propensity and transitory items in GAAP earnings conditional on both the sign and magnitude of the GAAP earnings surprise. Our findings suggest that non‐GAAP earnings disclosures tend to be driven by a desire for informative (strategic) reporting when GAAP earnings beat (undershoot) market expectations. 相似文献
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Although the fundamental and technical analysis literatures invest considerable effort in assessing their respective ability to explain share prices, they invariably do so without reference to each other. In this context, we propose an equity valuation model integrating both fundamental and technical analysis and, in doing so, recognize their potential as complements rather than as substitutes. Testing confirms the complementary nature of fundamental and technical analysis by showing that, although each performs well in isolation, models integrating both have superior explanatory power. While our findings relate to the valuation of shares, they also have implications for other valuation exercises. 相似文献
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We explore the theoretical relation between earnings and market returns as well as the properties of earnings frequency distributions under the assumption that managers use unbiased accounting information to sequentially decide on real options their firms have and report generated earnings truthfully, with the market pricing the firm based on those reported earnings. We generate benchmarks against which empirically observed earnings‐returns relations and aggregate earnings distributions can be evaluated. This parsimonious model shows a coherent set of results: reported losses are less persistent than reported gains, decision making diminishes the S‐shaped market response to earnings and earnings relate to returns asymmetrically in the way documented by Basu [1997]. Furthermore, the implied frequency distribution of aggregate earnings is neither symmetric nor necessarily single‐peaked. Instead, it may exhibit a kink at zero and look similar to the plots reported by Burgstahler and Dichev [1997]. However, within our model, none of these phenomena are due to reporting noise, bias, or some undesirable strategic managerial behavior. They are the natural consequences of using past earnings as the basis for value increasing managerial decision making that in turn generates the future earnings on which future decisions will be based. 相似文献
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Recent changes in technology and the media are causing significant changes in how capital markets assimilate and respond to information. We identify important themes in the disclosure literature and use this as a framework to discuss the conference papers that appear in this volume. These papers examine how managers’ disclosure practices are being affected by changes in technology, the media, and capital markets. While this work makes important progress, we discuss how continuing technological change and the emergence of new forms of media offer further opportunities for research on the role of disclosure in capital markets. 相似文献
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Errors and bias are both inherent features of accounting. In theory, while errors discourage bias by lowering the value relevance of accounting, they can also facilitate bias by providing camouflage. Consistent with theory, we find a hump‐shaped relation between a firm's propensity to engage in intentional misstatement and the prevalence of unintentional misstatements in the firm's industry for the whole economy and a majority of the industries. The result is robust to using firms’ number of items in financial statements and exposure to complex accounting rules as alternative proxies for errors and to using the restatement amount in net income to quantify the magnitude of bias and errors. To directly test for the two effects of errors, we show that when errors are more prevalent, the market reacts less to firms’ earnings surprises and bias is more difficult to detect. Our results highlight the imperfectness of accounting, advance understanding of firms’ reporting incentives, and shed light on accounting standard setting. 相似文献
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A variety of variables have been used to form contrarian portfolios, ranging from relatively simple measures, like book‐to‐market, cash flow‐to‐price, earnings‐to‐price and past returns, to more sophisticated measures based on the Ohlson model and residual income model (RIM). This paper investigates whether: (i) contrarian strategies based on RIM perform better or worse than those based on the Ohlson model; (ii) contrarian strategies based on more sophisticated valuation models (e.g. Ohlson and RIM) perform much better than the relatively simpler ranking variables that have been used so extensively in the finance literature. Given that the RIM and Ohlson models require greater information inputs and technical know‐how, and make different implicit assumptions on future abnormal earnings, it is important to ascertain if they offer significantly greater contrarian profits to outweigh the increased costs that they entail. Indeed, our surprising finding is that simple cash flow‐to‐price measures appear to do almost as well as the more sophisticated alternatives. One would have expected the sophisticated models to significantly outperform the simple cash flow to price model for the reasons given by Penman (2007) . 相似文献
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Hybrid financial instruments contain features of both liabilities and equity. Standard setters continue to struggle with “getting the classification right” for these complex instruments. In this paper, we experimentally test whether the features of hybrid instruments affect the credit‐related judgments of experienced finance professionals, even when the hybrid instruments are already classified as liabilities or equity. Our results suggest that getting the classification right is not of primary importance for these experienced users, as they largely rely on the underlying features of the instrument to make their judgments. A second experiment shows that experienced users’ reliance on features generalizes to several features that often characterize hybrid instruments. However, we also find that experienced users vary in their beliefs about which individual features are most important in distinguishing between liabilities and equity. Together, our results highlight the importance of effective disclosure of hybrid instruments’ features. 相似文献
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《China Journal of Accounting Research》2023,16(2):100301
Based on a quasi-natural experiment that mandates a subset of listed firms to issue standalone corporate social responsibility (CSR) reports, we examine whether mandatory CSR disclosure improves analysts’ information environment. We focus on two properties of analysts’ earnings forecasts: forecast error and forecast dispersion. We find that the mandatory issuance of standalone CSR reports is related to less forecast error and less dispersed forecasts, and the effect varies with the firm-level information environment and province-level marketization. Additional tests show that the improvement in forecast properties is mainly driven by CSR reports that i) are of high quality and ii) contain more long-term-oriented information than other CSR reports. Our findings provide evidence that mandatory CSR disclosure plays an important informational role for financial analysts. 相似文献
20.
Unsophisticated Arbitrageurs and Market Efficiency: Overreacting to a History of Underreaction?
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JONATHAN A. MILIAN 《Journal of Accounting Research》2015,53(1):175-220
Prior research has documented that arbitrage activity significantly reduces or eliminates stock market anomalies. However, if anomalies arise due to unsophisticated investors’ behavioral biases, then these same biases can also apply to unsophisticated arbitrageurs and thereby disrupt the arbitrage process. Consistent with a disruption in the arbitrage process for the post‐earnings announcement drift anomaly, I document that the historically positive autocorrelation in firms’ earnings announcement news has become significantly negative for firms with active exchange‐traded options. For these easy‐to‐arbitrage firms, the firms in the highest decile of prior earnings announcement abnormal return (prior earnings surprise), on average, underperform the firms in the lowest decile by 1.59% (1.43%) at their next earnings announcement. Additional analyses are consistent with investors learning about the post‐earnings announcement drift anomaly and overcompensating. This study suggests that unsophisticated attempts to profit from a well‐known anomaly can significantly reverse a previously documented stock return pattern. 相似文献