The Circumstances and Legal Consequences of Non‐GAAP Reporting: Evidence from Restatements*

Our study examines the circumstances of non‐GAAP financial reporting by 492 U.S. companies that announced restatements from 1995 to 1999. We focus on income statements to analyze the occurrence and resolution of litigation over restatements and explore the role of accounting items in bringing and resolving this litigation. We provide evidence on the pervasiveness of accounting misstatements, describe their nature, and show how, if at all, they affect litigation. We assess the nature of restatements by determining whether regular, recurring earnings from primary operations (core) or other components of earnings (noncore) are misstated, and we assess their pervasiveness by estimating the number of primary accounts misstated. In our sample, companies with core restatements have higher frequencies of intentional misstatements (fraud) and subsequent bankruptcy or delisting. Likewise, these companies have, on average, more material misstatements, more negative security price reactions to restatement announcements, and more negative security price changes over the six months preceding and following restatement announcements. However, controlling for these and other factors, we find a significant association between accounting items and litigation, whether occurrences or resolutions. Specifically, core restatements — driven primarily by misstatements of revenue, a component of core earnings — and more pervasive restatements each play a role, while misstatements of noncore earnings alone do not.     

Investment Decisions for Retirement Savings

We conducted a choice experiment to investigate whether retirement savers follow simple portfolio theory when choosing investments. We modeled experimental survey data on 693 participants using a scale-adjusted version of the latent class choice model. Results show that underlying variability in response was explained by age and “risk profile” score and that preferences varied with income and age. Younger individuals were conventionally risk averse, but older, higher-income individuals may react positively to both higher returns and increasing risk, when risk is presented as widening ranges of possible outcomes. Respondents tended to choose among a few similar investment options.     

The contribution of discretionary salt to total salt intake

The aim of this research was to investigate sodium consumption in a group of people, compare this consumption with dietary reference values and to identify sources of sodium in the diet. Participants were given weighed salt pots which were used for 8 weeks and a fully weighed dietary survey was conducted by each subject. The average daily sodium consumption of each subject was calculated and compared with the reference nutrient intake (RNI). Daily sodium intake was found to vary considerably, ranging from 1213 mg (53 mmol) (76% of the RNI) to 10 569 mg (460 mmol) (661% of the RNI). Average daily sodium consumption was found to be 5175 mg (225 mmol), well above the RNI of 1600 mg (70 mmol). The average contribution from discretionary salt was 15.0%, from processed foods 76.5% and from naturally occurring sodium 8.4%. Males were found to consume more sodium than females and a moderate correlation between age and daily sodium intake was found.     

RATIONALE FOR DISSENT: THE CASE OF FOMC MEMBERS

This paper investigates monetary policymakers' rationale for dissent to test for a hypothesized difference in policy preferences between bank presidents and members of the Board of Governors. The paper analyzes the cited reasons for dissent, the identity of the dissenter, and uses multiple regression to make inferences regarding the differences.
Examining the identity of dissenters and the given reasons for dissent yields four conclusions, (i) A broad base of bank presidents dissent for tighter policy because they want to control inflation by keeping monetary aggregates within targeted ranges. (ii) On the other hand, board members' dissent for tighter policy is dominated by one man–Henry Wallich—who apparently was disturbed by the inflationary outbreak during the late 1970s and early 1980s. (Hi) Several board members dissent for looser policy to stimulate the real economy, (iv) But only a few bank presidents, primarily from the Northeast, dissent for looser policy with the same objective.
Regression analysis supports the assertion that bank presidents dissenting for tighter policy do so to keep monetary aggregates on target in order to control inflation. The analysis confirms Wallich's focus on inflation during the late 1970s and early 1980s. It also allows for the possibility that the various board members dissenting for looser policy either have an inherent preference for looser policy or have diverse reasons for dissent.     

The Welfare Loss of the Voluntary Export Restraint For Japanese Automobiles

The welfare loss from the voluntary export restraint (VER) on Japanese automobiles was estimated for the first year of the VER (April 1, 1981 to March 31, 1982). The impact of quantity reductions on the price of Japanese and domestic automobiles was used to estimate the welfare loss. Losses were estimated separately for the domestic small car market and the Japanese market in view of the existence of product differentiation. Welfare losses ranged from $446 million to $1,386 million depending on the price elasticity of demand assumed for Japanese automobiles. The welfare loss for domestic automobiles accounted for only a small proportion of this loss. The VER had a minor impact on the domestic automobile industry where sales remained low due to general economic conditions and limited substitutability between domestic and Japanese cars. However, the limited assistance provided by the VER to the domestic automobile industry entailed considerable costs as demonstrated by the magnitude of the welfare loss. A considerable part of this loss could have been avoided if other forms of trade protection such as tariffs had been used instead of the VER.     

Expected Mispricing: The Joint Influence of Accounting Transparency and Investor Base

We examine how accounting transparency and investor base jointly affect financial analysts' expectations of mispricing (i.e., expectations of stock price deviations from fundamental value). Within a range of transparency, these two factors interactively amplify analysts' expectations of mispricing—analysts expect a larger positive deviation when a firm's disclosures more transparently reveal income‐increasing earnings management and the firm's most important investors are described as transient institutional investors with a shorter‐term horizon (low concentration in holdings, high portfolio turnover, and frequent momentum trading) rather than dedicated institutional investors with a longer‐term horizon (high concentration in holdings, low portfolio turnover, and little momentum trading). Results are consistent with analysts anticipating that transient institutional investors are more likely than dedicated institutional investors to adjust their trading strategies for near‐term factors affecting stock mispricings. Our theory and findings extend the accounting disclosure literature by identifying a boundary condition to the common supposition that disclosure transparency necessarily mitigates expected mispricing, and by providing evidence that analysts' pricing judgments are influenced by their anticipation of different investors' reactions to firm disclosures.     

Volatility in Wheat Spot and Futures Markets, 1950–1993: Government Farm Programs,Seasonality, and Causality

We explore how wheat spot and futures market volatility has been impacted by government farm programs during the 1950–1993 period. We find that changing volatility in both markets is highly associated with changing farm programs. The mandatory allotment programs of the 1950s and early 1960s (1/3/50–4/10/64) were associated with low volatility, while the voluntary programs initiated in the mid 1960s seem to have induced high volatility (4/11/64–12/22/85). Both market-driven loan rates and conservation reserve programs appear to have helped volatility revert to lower levels since the mid 1980s (12/23/85–12/30/93). We also examine seasonality and causality in conjunction with the farm programs.