Discussion of "market consequences of earnings management in response to security regulations in China"

Discussion of "market consequences of earnings management in response to security regulations in China

Capital Markets Research And The Goodwill Debate

This paper provides a review of capital markets research relevant to the goodwill accounting debate. Results indicate that the reported goodwill asset under United States GAAP is associated with share values, but there is no clear evidence of a similar association for goodwill amortisation. Similarly, there is no clear evidence of a competitive disadvantage associated with the requirement to amortise goodwill. © 1995 CPA Australi

EMPLOYEE COMPENSATION AND FIRMS RESEARCH-AND-DEVELOPMENT ACTIVITY

EMPLOYEE COMPENSATION AND FIRMS RESEARCH-AND-DEVELOPMENT ACTIVIT

Accounting measurement and capital markets research

Numerous controversies - from goodwill amortisation to the appropriateness of fair value accounting - illustrate both the importance of measurement questions, and the difficulty often encountered in devising accounting measurement “solutions” that are widely accepted. This paper discusses what might be learned about accounting measurement questions from the perspective of capital markets-based research. While this field of inquiry is not well developed, there are indications that further research from the capital markets perspective could provide useful conclusions about accounting measurement. © 2000 CPA Australia

Disclosure quality, diversification and the cost of capital

Based on a stylized infinite-period and multi-asset model of a securities market, I discuss several aspects of the link between disclosure quality and cost of capital, with a particular focus on how diversification influences this link. I first show that because investors have finite horizons and thus face price risk, disclosure plays a role in determining ex ante cost of capital in such a setting, contrary to the result of Christensen et al.((2010) Information and the cost of capital: An ex ante perspective. Accounting Review 83: 817-848). With respect to diversification, I highlight the role of three aspects of a 'large economy' that influence how disclosure quality affects cost of capital: (1) the number of firms across which risk is distributed; (2) the number of investors among whom this risk is shared; and (3) the number of information signals (disclosures) available to investors from which to extract information. Finally, I extend the model to include the effects of non-rational traders who follow a simple trading heuristic and show that this results in an additional disclosure-contingent factor in equilibrium price that does not diversify away under fairly general conditions. © The Author(s) 2013

Alternative Hypotheses Concerning Depreciation of Buildings

Ball, Walker and Whittred (1979) reported that companies receiving audit qualifications for non‐compliance with the requirement to depreciate buildings earned higher than expected returns at the time of the release of the qualification. This paper examines the possibility that this result could be due to cash‐flow effects related to the decision not to comply with the depreciation requirement. The results generally support the view that there are cash‐flow effects associated with a company's decision not to depreciate buildings. Copyright © 1983, Wiley Blackwell. All rights reserve

Differential tax benefits and the pension reversion decision

We document that tax considerations influence whether and when a firm withdraws excess assets in its defined benefit pension plan through a reversion. Since a reversion impacts taxable income over many years and alternative methods of withdrawing excess assets exist, we argue that the economically relevant tax-based decision criterion is its 'differential tax benefit', defined as the difference between the discounted tax savings of reversion versus those of the best alternative withdrawal method. We develop a technique for directly estimating this decision criterion and document that differential tax benefits are strongly correlated with the reversion decision and its timing

Global harmonisation of accounting standards: What research into capital markets tells us

Global harmonisation of accounting standards: What research into capital markets tells u

Capital gains taxes and the market response to public announcements in an indexation-based tax regime

This paper addresses the impact of capital gains taxes on the market price and trading volume response to public announcements in an indexation-based tax regime. Our analysis indicates that indexation makes share prices more responsive to public announcements. Moreover, 'over responsiveness' induces negative correlation between short-term price changes around the public announcement and subsequent long-term price movements. This effect is greater when anticipated inflation is higher. Our analysis also indicates that trading volume is increasing in price changes around the public announcement. © 2012

The Association Between Earnings and Returns and Macroeconomic Performance: Evidence from Australia, the US and China

This paper provides some initial descriptive and exploratory results concerning the earnings-returns relation in periods of poor versus strong macroeconomic performance. Based on data from three countries - Australia, the US and China - the results indicate some differences for US and Chinese firms, but not Australian firms. However the results for US and Chinese firms are somewhat contradictory - US (Chinese) firms generally exhibit a stronger (weaker) earnings-returns association in periods of both negative and strongly positive macroeconomic performance. These differences appear largely attributable to reported profits and not to losses. No evidence is found that poor earnings news released during periods such as the Global Financial Crisis is 'punished' relative to other periods. © 2011 CPA Australia