Earnings Management: The Effect of Ex Ante Earnings Expectations

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A new upper bound for the cross number of finite Abelian groups

In this paper, building among others on earlier works by U. Krause and C. Zahlten (dealing with the case of cyclic groups), we obtain a new upper bound for the little cross number valid in the general case of arbitrary finite Abelian groups. Given a finite Abelian group, this upper bound appears to depend only on the rank and on the number of distinct prime divisors of the exponent. The main theorem of this paper allows us, among other consequences, to prove that a classical conjecture concerning the cross and little cross numbers of finite Abelian groups holds asymptotically in at least two different directions.Comment: 21 pages, to appear in Israel Journal of Mathematic

The ability of analysts’ recommendations to predict optimistic and pessimistic forecasts

Previous researches show that buy (growth) companies conduct income increasing earnings management in order to meet forecasts and generate positive forecast Errors (FEs). This behavior however, is not inherent in sell (non-growth) companies. Using the aforementioned background, this research hypothesizes that since sell companies are pressured to avoid income increasing earnings management, they are capable, and in fact more inclined, to pursue income decreasing Forecast Management (FM) with the purpose of generating positive FEs. Using a sample of 6553 firm-years of companies that are listed in the NYSE between the years 2005–2010, the study determines that sell companies conduct income decreasing FM to generate positive FEs. However, the frequency of positive FEs of sell companies does not exceed that of buy companies. Using the efficiency perspective, the study suggests that even though buy and sell companies have immense motivation in avoiding negative FEs, they exploit different but efficient strategies, respectively, in order to meet forecasts. Furthermore, the findings illuminated the complexities behind informative and opportunistic forecasts that falls under the efficiency versus opportunistic theories in literature

The Screening Effect of the Private Securities Litigation Reform Act

Prior research shows that the PSLRA increased the significance of merit-related factors, such as the presence of an accounting restatement or insider selling, in determining the incidence and outcomes of securities fraud class actions. (Johnson, Nelson, and Pritchard, 2007). This result, however, is consistent with two possible hypotheses. First, the PSLRA may have reduced solely the incidence of non-meritorious litigation. Second, the PSLRA may have changed the definition of merit, effectively precluding claims that would have survived and produced a settlement pre-PSLRA. This paper tests these alternative hypotheses. We find that pre-PSLRA claims that settled for nuisance value would be less likely to be filed under the PSLRA regime. We also find, however, that pre-PSLRA non-nuisance claims would be less likely to be filed post-PSLRA period. The latter result, which we refer to as the screening effect, is particularly pronounced for claims lacking obvious hard evidence indicia of fraud (an accounting restatement or an SEC investigation). This screening effect is stronger if the claims also lacked evidence of abnormal insider trading. By contrast, we find that pre-PSLRA claims with hard evidence or abnormal insider trading would be no less likely to be filed in the post-PSLRA period. We also examine the likelihood of settlement for pre-PSRLA claims if they had been filed in the post-PSLRA period, and find a similar screening effect for case outcomes. We conclude that Congress effectively changed the definition of merit in adopting the PSLRA, discouraging suits that would have produced a non-nuisance outcome prior to the law’s enactment

Management earnings forecasts and IPO performance: evidence of a regime change

Companies undertaking initial public offerings (IPOs) in Greece were obliged to include next-year profit forecast in their prospectuses, until the regulation changed in 2001 to voluntary forecasting. Drawing evidence from IPOs issued in the period 1993–2015, this is the first study to investigate the effect of disclosure regime on management earnings forecasts and IPO long-term performance. The findings show mainly positive forecast errors (forecasts are lower than actual earnings) and higher long-term returns during the mandatory period, suggesting that the mandatory disclosure requirement causes issuers to systematically bias profit forecasts downwards as they opt for the safety of accounting conservatism. The mandatory disclosure requirement artificially improves IPO share performance. Overall, our results show that mandatory disclosure of earnings forecasts can impede capital market efficiency once it goes beyond historical financial information to involve compulsory projections of future performance

Molecular characterization of occult hepatitis B virus infection in patients with end-stage liver disease in Colombia.

ABSTARCT: Hepatitis B virus (HBV) occult infection (OBI) is a risk factor to be taken into account in transfusion, hemodialysis and organ transplantation. The aim of this study was to identify and characterize at the molecular level OBI cases in patients with end-stage liver disease. METHODS: Sixty-six liver samples were obtained from patients with diagnosis of end-stage liver disease submitted to liver transplantation in Medellin (North West, Colombia). Samples obtained from patients who were negative for the surface antigen of HBV (n = 50) were tested for viral DNA detection by nested PCR for ORFs S, C, and X and confirmed by Southern-Blot. OBI cases were analyzed by sequencing the viral genome to determine the genotype and mutations; additionally, viral genome integration events were examined by the Alu-PCR technique. RESULTS: In five cases out of 50 patients (10%) the criteria for OBI was confirmed. HBV genotype F (subgenotypes F1 and F3), genotype A and genotype D were characterized in liver samples. Three integration events in chromosomes 5q14.1, 16p13 and 20q12 affecting Receptor-type tyrosine-protein phosphatase T, Ras Protein Specific Guanine Nucleotide Releasing Factor 2, and the zinc finger 263 genes were identified in two OBI cases. Sequence analysis of the viral genome of the 5 OBI cases showed several punctual missense and nonsense mutations affecting ORFs S, P, Core and X. CONCLUSIONS: This is the first characterization of OBI in patients with end-stage liver disease in Colombia. The OBI cases were identified in patients with HCV infection or cryptogenic cirrhosis. The integration events (5q14.1, 16p13 and 20q12) described in this study have not been previously reported. Further studies are required to validate the role of mutations and integration events in OBI pathogenesis

Systemic Biomarkers of Neutrophilic Inflammation, Tissue Injury and Repair in COPD Patients with Differing Levels of Disease Severity

The identification and validation of biomarkers to support the assessment of novel therapeutics for COPD continues to be an important area of research. The aim of the current study was to identify systemic protein biomarkers correlated with measures of COPD severity, as well as specific protein signatures associated with comorbidities such as metabolic syndrome. 142 protein analytes were measured in serum of 140 patients with stable COPD, 15 smokers without COPD and 30 non-smoking controls. Seven analytes (sRAGE, EN-RAGE, NGAL, Fibrinogen, MPO, TGF-α and HB-EGF) showed significant differences between severe/very severe COPD, mild/moderate COPD, smoking and non-smoking control groups. Within the COPD subjects, univariate and multivariate analyses identified analytes significantly associated with FEV1, FEV1/FVC and DLCO. Most notably, a set of 5 analytes (HB-EGF, Fibrinogen, MCP-4, sRAGE and Sortilin) predicted 21% of the variability in DLCO values. To determine common functions/pathways, analytes were clustered in a correlation network by similarity of expression profile. While analytes related to neutrophil function (EN-RAGE, NGAL, MPO) grouped together to form a cluster associated with FEV1 related parameters, analytes related to the EGFR pathway (HB-EGF, TGF-α) formed another cluster associated with both DLCO and FEV1 related parameters. Associations of Fibrinogen with DLCO and MPO with FEV1/FVC were stronger in patients without metabolic syndrome (r  =  −0.52, p  = 0.005 and r  =  −0.61, p  = 0.023, respectively) compared to patients with coexisting metabolic syndrome (r  =  −0.25, p  = 0.47 and r  =  −0.15, p  = 0.96, respectively), and may be driving overall associations in the general cohort. In summary, our study has identified known and novel serum protein biomarkers and has demonstrated specific associations with COPD disease severity, FEV1, FEV1/FVC and DLCO. These data highlight systemic inflammatory pathways, neutrophil activation and epithelial tissue injury/repair processes as key pathways associated with COPD

Management Forecast Credibility and Underreaction to News

In this paper, we first document evidence of underreaction to management forecast news. We then hypothesize that the credibility of the forecast influences the magnitude of this underreaction. Relying on evidence that more credible forecasts are associated with a larger reaction in the short window around the management forecasts and a smaller post-management forecast drift in returns, we show that the magnitude of the underreaction is smaller for firms that provide more credible forecasts. Our paper contributes to the literature by providing out-of-sample evidence of the drift in returns documented in the post-earnings-announcement drift literature, with the credibility of the news being one explanation for the phenomenon.Sloan School of ManagementWharton SchoolDeloitte Foundatio