An analysis of highway work zone safety practices in Pakistan

Highway Work Zones (HWZs) present a major hazard for road users, construction workers and equipment, and significantly contribute to occurrence of road crashes worldwide. The present study focuses on analysing the current state of safety measures at HWZs in Pakistan. A more direct approach is adopted by comparing safety measures at randomly selected HWZs in Pakistan with well-established safety procedures in Manual on Uniform Traffic Control Devices (MUTCD). HWZ safety measures such as traffic signs, markings, safety measures for pedestrians, workers and construction machinery, police enforcement, speed control measures, provision of advance warning area, buffer spaces, transition areas, and tapers for eight different HWZs were studied and compared with MUTCD standards. The results revealed that majority of the HWZs in Pakistan do not conform to any standard layout especially for safety and speed control measures. An enhanced need for special efforts towards improving safety at HWZs in Pakistan is highlighted.     

Earnings characteristics and analysts’ differential interpretation of earnings announcements: An empirical analysis

This study provides empirical evidence on factors that drive differential interpretation of earnings announcements. We document that Kandel and Pearson's forecast measures of differential interpretation are decreasing in proxies for earnings quality and pre‐announcement information quality. This evidence yields new and useful insights regarding which earnings announcements are less likely to generate newfound disagreement among analysts and investors. Recent research suggests that investor disagreement can increase investment risk, increase the cost of capital, and cause stock prices to deviate from fundamental value. Therefore, our results support prior intuition that increasing the quality of earnings and pre‐announcement information can improve the efficiency of capital markets.     

Does Mandatory Adoption of IFRS Improve Accounting Quality? Preliminary Evidence

We provide evidence on the preliminary effects of mandatory adoption of International Financial Reporting Standards (IFRS) on accounting quality for a relatively broad set of firms from 20 countries that adopted IFRS in 2005 relative to a benchmark group of firms from countries that did not adopt IFRS matched on the strength of legal enforcement, industry, size, book‐to‐market, and accounting performance. Relative to these benchmark firms, we find that IFRS firms exhibit significant increases in income smoothing and aggressive reporting of accruals, and a significant decrease in timeliness of loss recognition; however we do not find significant differences across IFRS and benchmark firms in meeting or beating earnings targets. Our findings contrast with findings in earlier studies which suggest that IFRS adoption leads to increased accounting quality. Our findings primarily hold for firms in strong enforcement countries, which suggests that enforcement mechanisms in these countries were not able to counter the initial effects of greater flexibility in IFRS relative to domestic GAAP.     

Evidence on the role of accounting conservatism in monitoring managers’ investment decisions

Watts (2003), among others, argues that conservatism helps in corporate governance by mitigating agency problems associated with managers’ investment decisions. We hypothesize that if conservatism reduces managers’ex ante incentives to take on negative net present value projects and improves the ex post monitoring of investments, firms with more conservative accounting ought to have higher future profitability and lower likelihood (and magnitude) of future special items charges. Consistent with this expectation, we find that firms with more conservative accounting have (i) higher future cash flows and gross margins and (ii) lower likelihood and magnitude of special items charges than firms with less conservative accounting.     

Earnings volatility,ambiguity, and crisis-period stock returns

Financial crises are marked by substantial increases in ambiguity where prices appear to decouple from fundamentals. Consistent with ambiguity-based asset pricing theories, we find that ambiguity concerns are more severe for firms with higher earnings volatility, causing investors to demand a higher ambiguity premium for such firms. While there is no relation between earnings volatility and stock returns under normal conditions, there is a significant negative relation between crisis-period stock returns and prior earnings volatility. The effect is stronger in firms with low institutional ownership and low analyst following, consistent with ambiguity concerns being greatest amongst firms with unsophisticated investors.     

An Empirical Analysis of the Effects of Online Trading on Stock Price and Trading Volume Reactions to Earnings Announcements*

This study provides evidence regarding the effects of online trading on stock price and trading volume reactions to quarterly earnings announcements. We test for differences in stock price and volume reactions to quarterly earnings announcements between a period with a significant amount of online trading (1996‐99) and a period without online trading (1992‐95). We conjecture that online trading has increased the proportion of naive investors in the market. We predict that this will result in (1) a decrease in the average precision of investor information prior to earnings announcements leading to higher earnings response coefficients (ERCs), (2) an increase in differential interpretation of earnings leading to higher trading volume reactions that are unrelated to price change, and (3) a decrease in differential prior precision leading to a decrease in the association between trading volume and absolute price change. We find evidence consistent with all three predictions. Our findings are relevant for assessing the validity of concerns about online trading expressed by regulators and the validity of theoretical models of trade with asymmetrically informed investors.     

Further evidence on analyst and investor misweighting of prior period cash flows and accruals

We empirically investigate three questions: (i) whether analysts and investors mis-estimate the persistence of operating cash flows, (ii) if so, is the cash flow effect distinct from the accrual effect in the sense that one effect holds after controlling for the other, and (iii) if these are distinct effects, which effect is stronger in magnitude? We find that prior period operating cash flows have a significant positive effect on forecast errors and stock returns consistent with analysts and investors underestimating the persistence of operating cash flows. Further, we find that not only is the operating cash flow effect distinct from the accrual (more specifically the working capital accrual) effect but it is also considerably larger in magnitude. To our knowledge, this is the first study that documents the relative magnitude of prior period cash flow and working capital accrual effects on forecast errors and stock returns. Our findings have several implications for future research and practice. First, the consistency of results across the two sets of users (analysts and investors) suggests that analyst-forecast inefficiencies are less likely to be driven by their incentives to promote stocks and more likely to be a manifestation of a broader phenomenon that has not been thoroughly investigated in prior studies. Second, for practitioners, our results suggest that a trading strategy based on prior period working capital accruals and cash flows would earn higher abnormal returns than a trading strategy based on accruals alone.     

Targets' Accounting Conservatism and the Gains from Acquisition*

We present evidence on the effects of target firms' accounting conservatism in a merger and acquisition transaction. Conservatism is distinct from other accounting or accrual quality constructs examined in prior work. Its unique features can lead to potential benefits for both the targets and the acquirers. The use of conservatism by targets reduces acquirers' risks of acquiring underperforming assets or overpaying for well-performing assets. In addition, targets' conservatism results in greater production of verifiable information that can help the acquirers better estimate and realize synergies of the combined firm. Consistent with these arguments, we find that firms with greater accounting conservatism are more likely to receive a bid. We also find that targets' conservatism increases the deal premium and the announcement returns of both the targets and the acquirers, respectively. Overall, these results indicate that conservatism provides benefits to both sellers and buyers of equity in an acquisition transaction.