Are Accruals during Initial Public Offerings Opportunistic?

We find evidence that initial public offering (IPO) firms, on average, have high positive issue-year earnings and abnormal accruals, followed by poor long-run earnings and negative abnormal accruals. The IPO-year abnormal, and not expected, accruals explain the cross-sectional variation in post-issue earnings and stock returns. The results are robust with respect to alternative abnormal accruals and earnings performance measures. IPO firms adopt more income-increasing depreciation policies when they deviate from similar prior performance same industry non-issuers, and they provide significantly less for uncollectible accounts receivable than their matched non-issuers. The results taken together suggest opportunistic earnings management partially explains the new issues anomaly.     

Why New Issues and High-Accrual Firms Underperform: The Role of Analysts' Credulity

We find that analysts' forecast errors are predicted by pastaccounting accruals (adjustments to cash flows to obtain reportedearnings) among both equity issuers and nonissuers. Analystsare more optimistic for the subsequent four years for issuersreporting higher issue-year accruals. The predictive power isgreater for discretionary accruals than nondiscretionary accrualsand is independent of the presence of an underwriting affiliation.Predicted forecast errors from accruals significantly explainthe long-term underperformance of new issuers. The predictabilityof forecast errors among nonissuers suggests that analysts'credulity about accruals management more generally contributesto market inefficiency.     

Nondisclosure and adverse disclosure as signals of firm value

We present a model in which some of the firm's information ('news')can be disclosed verifiably and some information ('type') cannot,to show that some firms may voluntarily withhold good news anddisclose bad news. We describe an equilibrium in which high-typefirms withhold good news and disclose bad news, whereas low-typefirms disclose good news and withhold bad news. Under some parametervalues, this equilibrium exists when other more traditionalequilibria are ruled out by standard equilibrium refinements.The model explains some otherwise anomalous empirical evidenceconcerning stock price reactions to disclosure, provides somenew empirical predictions, and suggests that mandatory disclosurerequirements may have the undesirable consequence of makingit more difficult for firms to reveal information that cannotbe disclosed credibly.     

Another look at corporate social responsibility and reporting: An empirical study in a developing country

This paper presents a view of corporate social responsibility accounting and reporting from the standpoint of a developing country. The study is based on a personal interview questionnaire survey conducted by the authors with mainly chief executive officers in one hundred companies operating in Malaysia. Various aspects of corporate social performance, including social reporting, are examined. The findings indicate that social reporting lags behind corporate social involvement and that major corporate attention is focused on activities relating to employees and products/services. In addition, the results show that corporate size and national origin of corporate ownership are relevant in reflecting the extent of social commitments made by companies.     

Limited attention,statement of cash flow disclosure,and the valuation of accruals

We test for the effect of limited attention on the valuation of accruals by comparing the immediate and long-term market reactions to earnings announcements between a subsample of firms that disclose only the balance sheet with a subsample of firms that disclose both the balance sheet and the statement of cash flows (SCF) in the earnings press release. Information about accruals generally can be inferred from comparative balance sheets, but the availability of the SCF makes accruals more salient and easier to process for investors with limited attention. Controlling for potential additional information and endogeneity of SCF disclosure, we find strong evidence that SCF disclosure enables more efficient pricing of accruals. Further analyses using a proxy for investor sophistication suggest that, when SCF is absent from the earnings press release, less sophisticated investors fail to discount accruals but sophisticated investors do.     

PERCEPTIONS OF AUSTRALIAN FINANCE MANAGERS ON THE IMPACT OF ADVERTISING ON THE ACCOUNTING PROFESSION: SOME EMPIRICAL EVIDENCE

This study examines the perceptions and attitudes of finance managers to the removal of advertising restrictions by public accounting firms. Twelve null hypotheses which were formulated and tested regarding the perceptions of finance managers to a range of issues related to advertising by public accounting firms indicated that younger finance managers without a tertiary education and who had no previous public accounting experience perceived greater overall positive benefits from complete removal of advertising restrictions. Older finance managers believed that greater overall detrimental effects would result if advertising restrictions were completely removed.     

Herd Behaviour and Cascading in Capital Markets: a Review and Synthesis

We review theory and evidence relating to herd behaviour, payoff and reputational interactions, social learning, and informational cascades in capital markets. We offer a simple taxonomy of effects, and evaluate how alternative theories may help explain evidence on the behaviour of investors, firms, and analysts. We consider both incentives for parties to engage in herding or cascading, and the incentives for parties to protect against or take advantage of herding or cascading by others.