Use Of Earnings Information For Stock Pricing In Different Market Cycles: The Effect Of Discretionary Accruals

This study examines the association between stock prices and discretionary accruals in different stock market cycles and presents evidence about the discrepancy in prior research that investors were able to identify earnings management in some cases, but not in some other cases. We argue that investors’ reaction to the true nature of EPS changes may be different in different market cycles. We suggests that investors pay less attention to the nature of EPS changes in an optimistic cycle, and are more critical in neutral and pessimistic cycles. Therefore, investors are more likely to detect and count for any earnings management in a neutral or pessimistic cycle than in an optimistic cycle. Using the U.S. quarterly data from July 01, 1997 to June 29, 2001, three market cycles were identified: optimistic, neutral and pessimistic. The test results indicated that the association between discretionary accruals and abnormal stock returns were insignificant in the neutral market cycle, significant and positive in the optimistic cycle and significant and negative in the pessimistic cycle. These findings indicate that investors tend to ignore the income-increasing effect of discretionary accruals on EPS changes in an optimistic market. The finding suggests that a more delegate and technical analysis of EPS changes is required when earnings information is used for stock pricing. It also suggests that a consideration of market cycle effect on investors’ use of EPS could improve the earnings-based ratio analysis. The findings propose that researchers interested in investigating the association between stock prices and earnings management should control for the effect of the market cycle during which their samples are drawn

Earnings Management Effect In Different Stock Market Cycles

This study examines the association between stock prices and discretionary accruals in different stock market cycles. The study presents evidence for a discrepancy in prior research and shows that investors are able to identify earnings management only in some cases. We argue that investors’ reaction to the true nature of EPS varies in different market cycles. We suggests that investors pay less attention to the nature of EPS changes in an optimistic cycles, and are more critical in neutral or pessimistic cycles. Therefore, investors are more likely to detect and count for any earnings management in the neutral or pessimistic cycle than in the optimistic cycle. The test results indicated that the association between discretionary accruals and abnormal stock returns were insignificant in the neutral market cycle, significant and positive in the optimistic cycle and significant and negative in the pessimistic cycle. These findings indicate that investors tend to ignore the income-increasing effect of discretionary accruals on EPS changes in an optimistic market. The findings suggest that researchers investigating the association between stock prices and earnings management should control for the type of the market cycle from which their samples are drawn

Motives For Employee Profit Sharing Schemes In The U.S., U.K. And Canada

This paper discusses different motives for profit sharing adoption in the U.S., Canada and the U.K., and analyzes employment-based factors that could contribute to these differences. Motives for profit sharing are classified into two groups: motivational and non-motivational. A theoretical model is presented that suggests a firm’s ability to use profit sharing for non-motivational purposes is limited by the status of domestic employment-related factors. The analytical review indicates that the non-motivational use of profit sharing is limited by the status of employment-related factors in each of the studied countries. However, the non-motivational use of profit sharing is probable if higher labor productivity is expected through other means. Implication of the results is discussed for future studies in this area

Motives For Employee Profit Sharing Schemes In The U.S., U.K. And Canada

This paper discusses different motives for profit sharing adoption in the U.S., Canada and the U.K., and analyzes employment-based factors that could contribute to these differences. Motives for profit sharing are classified into two groups: motivational and non-motivational. A theoretical model is presented that suggests a firm’s ability to use profit sharing for non-motivational purposes is limited by the status of domestic employment-related factors. The analytical review indicates that the non-motivational use of profit sharing is limited by the status of employment-related factors in each of the studied countries. However, the non-motivational use of profit sharing is probable if higher labor productivity is expected through other means. Implication of the results is discussed for future studies in this area

Earnings persistence and profit sharing plan adoption

This paper argues that prior studies investigating the determinants of profit sharing plan adoption fail to consider the effect of current earnings changes on future expected compensation payments under profit sharing that underlie the success of profit sharing in motivating employees. When current earnings changes are caused by factors that make earnings too volatile then the payments under profit sharing are volatile and their predictability is reduced. In this situation, profit sharing is not expected to be successful in motivating employees and would not be a preferred means of compensation. In contrast, if earnings changes are caused by factors that produce more sustainable effects on earnings, rendering them more reliable and predictable, then compensation payments under profit sharing will be more predictable and representative of employees' efforts. In this case, profit sharing would be more successful in motivating employees and is more likely to be adopted as a preferred compensation scheme. Accordingly, it is hypothesized that a positive association exists between the level of permanence of current earnings changes and the adoption of profit sharing plans. Permanence of earnings changes is measured by the level of earnings persistence which is computed using two alternative time-series models: IMA (1,1) and ARIMA (2,1,0). A Logit model is used to evaluate the effect of earnings persistence and control variables on the probability of adoption of employee profit sharing plans. Profit sharing data is extracted from the U.S. IRS 5500 Form while financial data for the sample firms are retrieved from Compustat. The final sample includes 298 firms that are equally split between profit sharing and non-profit sharing firms. The test results indicate that information about persistence of earnings innovations is a significant determinant of profit sharing plan adoption. Earnings persistence is positively associated with the probability of profit sharing plan adoption. This result is robust when the alternative measure of earnings persistence is used and the control variables are included. These results should lead to a richer model of employee profit sharing plan adoption and use

Effects of the Concrete Strength and FRP Reinforcement Type on the Non-Linear Behavior of Concrete Deep Beams

To provide sustainable reinforced concrete deep beams, the replacement of steel rebars by FRP rebars with high-chemical resistance is proposed by researchers. However, the effects of the concrete strength, top and web longitudinal reinforcements, and types of FRP flexural rebars on the non-linear performance of concrete deep beams have rarely been evaluated. This study numerically assessed the effects of the top and web longitudinal reinforcements and concrete strength on the non-linear behaviour of GFRP- and CFRP-strengthened concrete deep beams with various shear span-to-overall depth (a/h) ratios. As per the results, the highest tensile stress was obtained for the steel reinforcement, and the tensile stress in the CFRP reinforcement was more than that of the GFRP reinforcement under the failure load. Meanwhile, the results of high- and normal-strength concrete deep beams with the web reinforcement (16.4%) were lower than those without the web reinforcement (22.3%). Therefore, the web reinforcement moderately compensated for the low strength of normal concrete and the absence of the top longitudinal rebar to reinforce concrete deep beams in carrying the ultimate load. Furthermore, the participation of the GFRP reinforcement with the high-strength concrete was more than that with the normal-strength concrete in carrying a higher amount of loading