621 research outputs found
Determinants of capital market reactions to seasoned equity offers by German corporations
Our study provides evidence on the share price reactions to the announcement of equity issues in Germany, where capital market is characterized by institutional features distinct from the U.S. market. German seasoned equity issues yield a positive market reaction which contrasts to the significant negative abnormal returns reported for the U.S. We provide evidence that these results are due to differences in both issuing characteristics and floatation methods, and in the corporate governance and ownership structures of the two countries. Our study explains much of the empirical puzzle of different market reactions to seemingly similar events across financial markets
Estimating the expected cost of equity capital using consensus forecasts
In this study, we develop a technique for estimating a firmâs expected cost of equity capital derived from analyst consensus forecasts and stock prices. Building on the work of Gebhardt/Lee/-Swaminathan (2001) and Easton/Taylor/Shroff/Sougiannis (2002), our approach allows daily estimation, using only publicly available information at that date. We then estimate the expected cost of equity capital at the market, industry and individual firm level using historical German data from 1989-2002 and examine firm characteristics which are systematically related to these estimates. Finally, we demonstrate the applicability of the concept in a contemporary case study for DaimlerChrysler and the European automobile industry
Fair Value Reclassifications of Financial Assets during the Financial Crisis
At the peak of the financial crisis in October 2008, the IASB amended IAS 39 to grant companies the option of abandoning fair value recognition for selected financial assets. Using a comprehensive global sample of publicly listed IFRS banks, we find that banks use the reclassification option to forgo the recognition of fair value losses and ultimately the regulatory costs of supervisory intervention. Analyses of stock market reactions suggest that a small subset of the most troubled banks benefit from such reclassifications. However, analyses of related footnote disclosures reveal that two-thirds of reclassifying banks do not fully comply with the accompanying IFRS 7 requirements. These banks experience a significant increase in bid-ask spreads in the long run.Bank Regulation, Fair Value Accounting, Financial Crisis, IAS 39, IFRS 7
Economic benefits of adopting IFRS or US-GAAP - have the expected costs of equity capital really decreased?
The question whether the adoption of International Financial Reporting Standards (IFRS) will result in measurable economic benefits is of special policy relevance in particular given the European Unionâs decision to require the application of IFRS by listed companies from 2005/2007. In this paper, I investigate the common con-jecture that internationally recognized high quality reporting standards (IAS/IFRS or US-GAAP) reduce the cost of capital of adopting firms (e.g. Levitt 1998; IASB 2002). Building on Leuz/Verrecchia (2000), I use a set of German firms which pre-adopted such standards before 2005, but investigate the potential economic benefits by analyzing their expected cost of equity capital utilizing and customizing avail-able implied estimation methods (e.g. Gebhardt/Lee/Swaminathan 2001, Easton/Taylor/Shroff/Sougiannis 2002, Easton 2004). Evidence from a sample of about 13,000 HGB, 4,500 IAS/IFRS and 3,000 US-GAAP firm-month observations in the period 1993-2002 generally fails to document lower expected cost of equity capital and therefore measurable economic benefits for firms applying IAS/IFRS or US-GAAP. Accordingly, I caution to state that reporting under internationally accepted standards, per se, lowers the cost of equity capital of adopting firms
Zukunftsorientierte Bestimmung von Kapitalkosten fĂŒr die Unternehmensbewertung
Der Bestimmung risikoadĂ€quater DiskontierungssĂ€tze kommt bei der Unternehmensbedeutung eine zentrale Bedeutung zu. Wird zu deren Bestimmung in der praktischen Anwendung das CAPM verwendet, gilt es dabei, risikolose ZinssĂ€tze und RisikoprĂ€mien zu bestimmen, fĂŒr die erwartete Renditen des Marktportfeuilles und Beta-Faktoren als MaĂgröĂen fĂŒr das systematische Risiko benötigt werden. Passend zu den zu bewertenden erwarteten ĂberschussgröĂen sollten auch die zur Diskontierung verwendeten Renditeforderungen die im Bewertungszeitpunkt erwarteten kĂŒnftigen Renditen vergleichbarer Anlagen widerspiegeln. Die weitaus meisten BeitrĂ€ge zur Operationalisierung des CAPM leiten die Renditeforderungen jedoch aus historischen Kapitalmarktrenditen ab. Wir zeigen in diesem Beitrag auf, wie erwartete kĂŒnftige Renditen aus beobachtbaren GröĂen, vor allen den Zinsstrukturkurven und den beobachtbaren Analystenprognosen, zukunftsorientiert abgeleitet werden können. Damit wird eine konzeptionell schlĂŒssigere Bewertung der im Bewertungszeitpunkt erwarteten kĂŒnftigen ĂberschĂŒsse mit den zeitgleich erwarteten kĂŒnftigen Renditen ermöglicht
Evaluating Methods to Estimate the Implied Cost of Equity Capital: A Simulation Study
We evaluate accounting-based methods to estimate the implied cost of capital using a simulation approach. We simulate a model economy in which the true cost of capital is known and calibrate it to the CRSP-Compustat universe. We then compare the true cost of capital to the implied cost of capital estimates from ten different methods proposed in the literature in terms of bias, accuracy, and their correlation with the true cost of equity capital. Methods based on the residual income model perform better than those based on the abnormal earnings growth model. Methods that estimate the cost of capital and expected growth simultaneously work reasonably well if they rely on analyst forecasts instead of ex post realized values, even if analyst forecasts are biased. We suggest combined methods that are chosen so that the distortions from individual methods compensate each other and show that some simple combinations outperform all individual methods
Mandatory IFRS Reporting Around the World: Early Evidence on the Economic Consequences
This paper examines the economic consequences of mandatory International Financial Reporting Standards (IFRS) reporting around the world. We analyze the effects on market liquidity, cost of capital, and Tobin\u27s q in 26 countries using a large sample of firms that are mandated to adopt IFRS. We find that, on average, market liquidity increases around the time of the introduction of IFRS. We also document a decrease in firms\u27 cost of capital and an increase in equity valuations, but only if we account for the possibility that the effects occur prior to the official adoption date. Partitioning our sample, we find that the capital-market benefits occur only in countries where firms have incentives to be transparent and where legal enforcement is strong, underscoring the central importance of firms\u27 reporting incentives and countries\u27 enforcement regimes for the quality of financial reporting. Comparing mandatory and voluntary adopters, we find that the capital market effects are most pronounced for firms that voluntarily switch to IFRS, both in the year when they switch and again later, when IFRS become mandatory. While the former result is likely due to self-selection, the latter result cautions us to attribute the capital-market effects for mandatory adopters solely or even primarily to the IFRS mandate. Many adopting countries make concurrent efforts to improve enforcement and governance regimes, which likely play into our findings. Consistent with this interpretation, the estimated liquidity improvements are smaller in magnitude when we analyze them on a monthly basis, which is more likely to isolate IFRS reporting effects
Reflections on the 20-year anniversary of worldwide IFRS adoption
At the Ninth International Conference of the Journal of International Accounting Research, Editor Steve Lin organized a plenary session titled â20 Years of IFRS Researchâ to commemorate the 20th anniversary of the worldwide adoption of International Financial Reporting Standards (IFRS). During the session, each panelist presented their views on what we have learned from researching IFRS for the past 20 years and where we should go from here. This article presents a short essay from each panelist summarizing their comments, as well as related issues that were not fully explored at the conference
Post-earnings announcement drift in Greece
This paper presents evidence regarding the post-earnings announcement drift (PEAD) anomaly for the Greek market in the years 2000â2006 (covering earnings announcements in the years 2001â2007). The impact of the introduction of International Financial Reporting Standards on the size and prevalence of the PEAD anomaly is examined. Unlike recent evidence for the US market we find PEAD to be
alive and well, and of growing importance in our Greek sample. It may be the adoption of international financial reporting standards (IFRS) has served to reduce earnings predictability in Greece and thus enhance PEAD in the Athens stock exchange (ASE) market. This contrasts strongly with US evidence that the post earnings-
announcement drift anomaly is now waning as more efficient markets and smarter, fundamentals-based, traders arbitrage its impact on stock prices
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