Why Do Pro Forma and Street Earnings not Reflect Changes in GAAP? Evidence From SFAS 123R

This study examines how key market participants—managers and analysts—responded to SFAS 123R’s controversial requirement that firms recognize stock-based compensation expense. Despite mandated recognition of the expense, some firms’ managers exclude it from pro forma earnings and some firms’ analysts exclude it from Street earnings. We find evidence consistent with managers opportunistically excluding the expense to increase earnings, smooth earnings, and meet earnings benchmarks but no evidence that these exclusions result in an earnings measure that better predicts future firm performance. In contrast, we find that analysts exclude the expense from earnings forecasts when exclusion increases earnings’ predictive ability for future performance and that opportunism generally does not explain exclusion by analysts incremental to exclusion by managers. Thus our findings indicate that opportunism is the primary explanation for exclusion of the expense from pro forma earnings and predictive ability is the primary explanation for exclusion from Street earnings. Our findings suggest the controversy surrounding the recognition of stock-based compensation expense may be attributable to cross-sectional variation in the relevance of the expense for equity valuation, as well as to differing incentives of market participants

Asymmetric persistence and the market pricing of accruals and cash flows

We investigate whether stock prices reflect the asymmetric persistence of accruals and cash flows resulting from conditional conservatism. Using the Mishkin (1983) test (MT), we provide further evidence on the earnings fixation explanation for the accrual anomaly. We also apply panel estimation techniques that significantly affect market efficiency inferences. Our results suggest that over our sample period (1) investors seem to partially anticipate asymmetric persistence in accruals and cash flows; (2) the accrual anomaly originates in the dispricing of accruals in years of economic gains, even though the differential persistence between accruals and cash flows is greatest in years of economic losses; (3) investors respond differently to accrual and cash flow surprises and therefore they do not naively fixate on earnings surprises; and (4) after clustering standard errors in the MT by firm and year dimensions, there is no longer evidence of cash flow mispricing, while the statistical significance of accrual mispricing falls. All our findings contradict the earnings fixation explanation for the accrual anomaly. Our study has implications for understanding the accrual anomaly in relation to accrual dynamics, as well as for researchers interested in using the MT framework to test the rationality of investor expectations more generally

Inflation and Nominal Financial Reporting: Implications for Performance and Stock Prices

The monetary unit assumption of financial accounting assumes a stable currency (i.e., constant purchasing power over time). Yet, even during periods of low inflation or deflation, nominal financial statements violate this assumption. I posit that, while the effects of inflation are not recognized in nominal statements, such effects may have economic consequences. I find that unrecognized inflation gains and losses help predict future cash flows as these gains and losses turn into cash flows over time. I also find significant abnormal returns to inflation-based trading strategies, suggesting that stock prices do not fully reflect the implications of the inflation effects for future cash flows. Additional analysis reveals that stock prices act as if investors do not fully distinguish monetary and nonmonetary assets, which is fundamental to determining the effects of inflation. Overall, this study is the first to show that, although inflation effects are not recognized in nominal financial statements, they have significant economic consequences, even during a period in which inflation is relatively low

Non-Diversifiable Volatility Risk and Risk Premiums at Earnings Announcements

This study seeks to determine whether earnings announcements pose non-diversifiable volatility risk that commands a risk premium. We find that investors anticipate some earnings announcements to convey news that increases market return volatility and pay a premium to hedge this non-diversifiable risk. In particular, we find evidence of risk premiums embedded in prices of firms' traded options that are significantly positively associated with the extent to which the firms' earnings announcements pose non-diversifiable volatility risk. In addition, we find that volatility risk premiums are concentrated among bellwether firms and result in predictable variation in option straddle returns around earnings announcements. Taken together, our findings show that some earnings announcements pose non-diversifiable volatility risk that commands a risk premium

Identification and relative quantification of tyrosine nitration in a model peptide using two-dimensional infrared spectroscopy

Nitration of tyrosine in proteins and peptides is a post-translational modification that occurs under conditions of oxidative stress. It is implicated in a variety of medical conditions, including neurodegenerative and cardiovascular diseases. However, monitoring tyrosine nitration and understanding its role in modifying biological function remains a major challenge. In this work, we investigate the use of electron-vibration-vibration (EVV) two-dimensional infrared (2DIR) spectroscopy for the study of tyrosine nitration in model peptides. We demonstrate the ability of EVV 2DIR spectroscopy to differentiate between the neutral and deprotonated states of 3-nitrotyrosine, and we characterize their spectral signatures using information obtained from quantum chemistry calculations and simulated EVV 2DIR spectra. To test the sensitivity of the technique, we use mixed-peptide samples containing various levels of tyrosine nitration, and we use mass spectrometry to independently verify the level of nitration. We conclude that EVV 2DIR spectroscopy is able to provide detailed spectroscopic information on peptide side-chain modifications and to detect nitration levels down to 1%. We further propose that lower nitration levels could be detected by introducing a resonant Raman probe step to increase the detection sensitivity of EVV 2DIR spectroscopy. (Graph Presented)

Corporate social performance, competitive advantage, earnings persistence and firm value

This is the peer reviewed version of the article which has been published in final form at 10.1111/jbfa.12182. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.In this paper, using a generalised valuation framework inspired by Ohlson (1995), we show that corporate social performance (CSP) is value relevant and that, in particular, it appears to be associated with a higher coefficient on earnings. This could be attributable to either a lower cost of equity for these firms, or greater earnings persistence. We show that, once industry membership is controlled for, any cost of capital effect is minimal. Regression tests based on realised earnings confirm that the valuation effect is attributable mainly to greater earnings persistence in firms with higher levels of CSP. These outcomes are consistent with higher CSP conferring a competitive advantage on firms

Low vitamin D status is associated with systemic and gastrointestinal inflammation in dogs with a chronic enteropathy

Vitamin D is traditionally known for its role in calcium homeostasis and bone metabolism. However, it has been demonstrated that numerous types of cells express the vitamin D receptor and it is now clear that the physiological roles of vitamin D extend beyond the maintenance of skeletal health. Vitamin D insufficiency, which is typically assessed by measuring the major circulating form of vitamin D, 25 hydroxyvitamin D (25(OH)D), has been associated with a number of disorders in people including hypertension, diabetes, cardiovascular diseases, cancer, autoimmune conditions and infectious diseases. Meta-analyses have demonstrated that serum 25(OH)D concentrations are an important predictor of survival in people with a wide variety of illnesses and have been linked to all-cause mortality in the general human population. The role of vitamin D in non-skeletal disorders in cats and dogs is poorly understood. This is surprising since cats and dogs could act as excellent models for probing the biology of vitamin D. Vitamin D status in people is largely dependent on cutaneous production of vitamin D. This is influenced by many factors such as season, latitude and exposure to ultraviolet (UV) radiation. The interpretation of human studies investigating the effects vitamin D status on disease outcomes are therefore influenced by a number of confounding variables. Unlike humans, domesticated cats and dogs do not produce vitamin D cutaneously and obtain vitamin D only from their diet. The physiological functions and regulation of vitamin D are otherwise similar to humans. Most pets are fed commercial diets containing a relatively standard amount of vitamin D. Consequently, companion animals are attractive model systems in which to examine the relationship vitamin D status and health outcomes. Furthermore, spontaneously occurring model systems which did not require disease to be induced in healthy animals would allow the numbers of animals used in scientist research to be reduced. This thesis aimed to define vitamin D homeostasis in companion animals in three disease settings; in cats with feline immunodeficiency virus (FIV) infection, dogs with chronic enteropathies (CE) and in hospitalised ill cats. Additional aims were to assess the prognostic significance of serum 25(OH)D concentrations in companion animals and the relationship between serum 25(OH)D concentrations and markers of inflammation. The hypothesis of this thesis was that vitamin status D would negatively correlate with presence of disease, markers of inflammation and disease outcomes. As similar findings have been demonstrated in human medicine, the hypothesis was that cats and dogs would be suitable models to investigate the role of vitamin D in human disease. This thesis demonstrates that in dogs with a CE serum 25(OH)D concentrations are negatively correlated with inflammation and are predictive of clinical outcomes. Vitamin D status was also lower in cats with FIV and importantly vitamin D status was predictive of short term mortality in hospitalised ill cats. This research will be of interest to veterinary surgeons and opens the possibility for clinical trials which examine if low vitamin D status is causally associated with ill health and whether vitamin D supplementation results in superior treatment outcomes in companion animals. This thesis also demonstrates the potential of cats and dogs as model systems in which to examine the role of vitamin D in human health

Overview of JET results for optimising ITER operation

The JET 2019–2020 scientific and technological programme exploited the results of years of concerted scientific and engineering work, including the ITER-like wall (ILW: Be wall and W divertor) installed in 2010, improved diagnostic capabilities now fully available, a major neutral beam injection upgrade providing record power in 2019–2020, and tested the technical and procedural preparation for safe operation with tritium. Research along three complementary axes yielded a wealth of new results. Firstly, the JET plasma programme delivered scenarios suitable for high fusion power and alpha particle (α) physics in the coming D–T campaign (DTE2), with record sustained neutron rates, as well as plasmas for clarifying the impact of isotope mass on plasma core, edge and plasma-wall interactions, and for ITER pre-fusion power operation. The efficacy of the newly installed shattered pellet injector for mitigating disruption forces and runaway electrons was demonstrated. Secondly, research on the consequences of long-term exposure to JET-ILW plasma was completed, with emphasis on wall damage and fuel retention, and with analyses of wall materials and dust particles that will help validate assumptions and codes for design and operation of ITER and DEMO. Thirdly, the nuclear technology programme aiming to deliver maximum technological return from operations in D, T and D–T benefited from the highest D–D neutron yield in years, securing results for validating radiation transport and activation codes, and nuclear data for ITER