The Impact of Earnings on the Pricing of Credit Default Swaps

This study evaluates the impact of earnings on firm credit risk as captured by Credit Default Swaps (CDS). We find that earnings (changes) are negatively correlated with one-year swap premia (changes) after controlling for equity returns but not with longer term premia (changes). We also find that earnings surprises are significantly correlated with one-year CDS premia changes in the short window surrounding preliminary earnings dates and that absolute earnings surprises are significantly correlated with absolute one-year CDS premia changes in the short window surrounding SEC filing dates. These results suggest that high earnings convey favorable information about the short-term default risk of firms but not about the long term default risk. We further document that accruals/cash flow information conveyed by SEC filings provides information about long-term credit risk. Furthermore, the empirical results are consistent with structural and hybrid model-driven implications of CDS pricing

The Incremental Information Content of Tone Change in Management Discussion and Analysis

This study explores whether the Management Discussion and Analysis (MD&A) section of Form 10-Q and 10-K has incremental information content beyond financial measures such as earnings surprises, accruals and operating cash flows (OCF). It uses a well-established classification scheme of words into positive and negative categories to measure the tone change in a specific MD&A section as compared to those of the prior four filings. Our results indicate that short window market reactions around the SEC filing are significantly associated with the tone of the MD&A section, even after controlling for accruals, OCF and earnings surprises. We also show that the tone of the MD&A section adds significantly to portfolio drift returns in the window of two days after the SEC filing date through one day after the subsequent quarter’s preliminary earnings announcement, beyond financial information conveyed by accruals, OCF and earnings surprises. The incremental information of tone change is larger the weaker is the firm’s information environment

Beyond Absurd: Jim Thorpe and a Proposed Taxonomy for the Absurdity Doctrine

In light of the Third Circuit\u27s recent decision interpreting the Native American Graves Repatriation Act, this Article argues that the Supreme Court must clarify the Absurdity Doctrine of statutory interpretation. The Article offers a framework for doing so

The Incremental Information Content of Tone Change in Management Discussion and Analysis

This study explores whether the Management Discussion and Analysis (MD&A) section of Form 10-Q and 10-K has incremental information content beyond financial measures such as earnings surprises, accruals and operating cash flows (OCF). It uses a well-established classification scheme of words into positive and negative categories to measure the tone change in a specific MD&A section as compared to those of the prior four filings. Our results indicate that short window market reactions around the SEC filing are significantly associated with the tone of the MD&A section, even after controlling for accruals, OCF and earnings surprises. We also show that the tone of the MD&A section adds significantly to portfolio drift returns in the window of two days after the SEC filing date through one day after the subsequent quarter’s preliminary earnings announcement, beyond financial information conveyed by accruals, OCF and earnings surprises. The incremental information of tone change is larger the weaker is the firm’s information environment

Incorporating expression data in metabolic modeling: a case study of lactate dehydrogenase

Integrating biological information from different sources to understand cellular processes is an important problem in systems biology. We use data from mRNA expression arrays and chemical kinetics to formulate a metabolic model relevant to K562 erythroleukemia cells. MAP kinase pathway activation alters the expression of metabolic enzymes in K562 cells. Our array data show changes in expression of lactate dehydrogenase (LDH) isoforms after treatment with phorbol 12-myristate 13-acetate (PMA), which activates MAP kinase signaling. We model the change in lactate production which occurs when the MAP kinase pathway is activated, using a non-equilibrium, chemical-kinetic model of homolactic fermentation. In particular, we examine the role of LDH isoforms, which catalyze the conversion of pyruvate to lactate. Changes in the isoform ratio are not the primary determinant of the production of lactate. Rather, the total concentration of LDH controls the lactate concentration.Comment: In press, Journal of Theoretical Biology. 27 pages, 9 figure

Accounting Restatements: Are they Always Bad News for Investors?

This study investigates a large sample of financial statement restatements over the period 1986-2001, and compares restatements caused by changes in accounting principles to those caused by errors. Typically, investors perceive restatements as negative signals due to three potential reasons: (i) the restatement indicates problems with the accounting system that may be manifestations of broader operational (and managerial) problems, (ii) the restatement causes downward revisions in future cash flows expectations, and (iii) the restatement indicates managerial attempts to cover up income decline through “cooking the books”. We provide evidence that market reactions to restatements due to errors are generally negative. We show that these restatements come in periods of declining profits and lower profits than industry peers for the restating firms, consistent with both opportunistic managerial behavior and operational problems. However, investors’ reactions to income-increasing restatements due to errors are not different from zero, suggesting that the perceived failure of the accounting system is just offset by the upward revisions in future cash flow expectations in these cases of income-increasing errors. Thus, our combined results show that not all restatements are alike; users of the information need to carefully assess the existence and potential effects of the three factors that typically cause the downward revisions in stock prices on a case by case basis

Oops, our earnings were indeed preliminary: Market reactions to companies that subsequently file different earnings with the SEC

Abstract This study examines market reactions to earnings surprises in those special cases where firms revise earnings in their SEC filings from those reported just a few weeks earlier in the preliminary earnings announcements. We find that investors react to the new surprise in earnings upon the SEC filings in contrast to most of the prior literature which was unable to document market reactions to information in the SEC filings. Thus, our findings provide evidence that when the SEC filings contain material new information, investors incorporate it in pricing the firms' shares. We also find that market reactions are stronger for cases of downward earnings revisions than upward earnings revisions, but that an inverse drift in abnormal returns occurs for upward earnings revisions beyond the SEC filing date. Finally, we document that security analysts revise their forecasts upon the preliminary earnings announcement, but ignore the new information contained in the SEC filings

An IFNγ/CXCL2 regulatory pathway determines lesion localization during EAE

Abstract Background Myelin oligodendrocyte glycoprotein (MOG)-reactive T-helper (Th)1 cells induce conventional experimental autoimmune encephalomyelitis (cEAE), characterized by ascending paralysis and monocyte-predominant spinal cord infiltrates, in C57BL/6 wildtype (WT) hosts. The same T cells induce an atypical form of EAE (aEAE), characterized by ataxia and neutrophil-predominant brainstem infiltrates, in syngeneic IFNγ receptor (IFNγR)-deficient hosts. Production of ELR+ CXC chemokines within the CNS is required for the development of aEAE, but not cEAE. The cellular source(s) and localization of ELR+ CXC chemokines in the CNS and the IFNγ-dependent pathways that regulate their production remain to be elucidated. Methods The spatial distribution of inflammatory lesions and CNS expression of the ELR+ CXC chemokines, CXCL1 and CXCL2, were determined via immunohistochemistry and/or in situ hybridization. Levels of CXCL1 and CXCL2, and their cognate receptor CXCR2, were measured in/on leukocyte subsets by flow cytometric and quantitative PCR (qPCR) analysis. Bone marrow neutrophils and macrophages were cultured with inflammatory stimuli in vitro prior to measurement of CXCL2 and CXCR2 by qPCR or flow cytometry. Results CNS-infiltrating neutrophils and monocytes, and resident microglia, are a prominent source of CXCL2 in the brainstem of IFNγRKO adoptive transfer recipients during aEAE. In WT transfer recipients, IFNγ directly suppresses CXCL2 transcription in microglia and myeloid cells, and CXCR2 transcription in CNS-infiltrating neutrophils. Consequently, infiltration of the brainstem parenchyma from the adjacent meninges is blocked during cEAE. CXCL2 directly stimulates its own expression in cultured neutrophils, which is enhanced by IL-1 and suppressed by IFNγ. Conclusions We provide evidence for an IFNγ-regulated CXCR2/CXCL2 autocrine/paracrine feedback loop in innate immune cells that determines the location of CNS infiltrates during Th1-mediated EAE. When IFNγ signaling is impaired, myeloid cell production of CXCL2 increases, which promotes brainstem inflammation and results in clinical ataxia. IFNγ, produced within the CNS of WT recipients, suppresses myeloid cell CXCR2 and CXCL2 production, thereby skewing the location of neuroinflammatory infiltrates to the spinal cord and the clinical phenotype to an ascending paralysis. These data reveal a novel mechanism by which IFNγ and CXCL2 interact to direct regional recruitment of leukocytes in the CNS, resulting in distinct clinical presentations.https://deepblue.lib.umich.edu/bitstream/2027.42/145159/1/12974_2018_Article_1237.pd