In Defense of Fair Value: Weighing the Evidence on Earnings Management and Asset Securitizations

Dechow, Myers, and Shakespeare (DMS, 2009) find a negative relation between income from securitization activities and income from non-securitization activities. DMS interprets this finding as indicating that managers use the flexibility available in fair value accounting rules to smooth earnings. We clarify the role of fair value in accounting for asset securitizations, discuss alternative explanations for the evidence presented in DMS, and offer suggestions for future research. We caution against inferring the desirability of any particular accounting method from earnings management research

Market Reaction to the Adoption of IFRS in Europe

This study examines the European stock market reaction to sixteen events associated with the adoption of International Financial Reporting Standards (IFRS) in Europe. European IFRS adoption represented a major milestone towards financial reporting convergence yet spurred controversy reaching the highest levels of government. We find a more positive reaction for firms with lower quality pre-adoption information, which is more pronounced in banks, and with higher pre-adoption information asymmetry, consistent with investors expecting net information quality benefits from IFRS adoption. We also find that the reaction is less positive for firms domiciled in code law countries, consistent with investors' concerns over enforcement of IFRS in those countries. Finally, we find a positive reaction to IFRS adoption events for firms with high quality pre-adoption information, consistent with investors expecting net convergence benefits from IFRS adoption. Overall, the findings suggest that investors in European firms perceived net benefits associated with IFRS adoption.IFRS, IAS 39, Convergence, Europe, Event Study

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

Aerosol microphysical impact on summertime convective precipitation in the Rocky Mountain region

We present an aerosol-cloud-precipitation modeling study of convective clouds using the Weather Research and Forecasting model fully coupled with Chemistry (WRF-Chem) version 3.1.1. Comparison of the model output with measurements from a research site in the Rocky Mountains in Colorado revealed that the fraction of organics in the model is underpredicted. This is most likely due to missing processes in the aerosol module in the model version used, such as new particle formation and growth of secondary organic aerosols. When boundary conditions and domain-wide initial conditions of aerosol loading are changed in the model (factors of 0.1, 0.2, and 10 of initial aerosol mass of SO4-2, NH4+, and NO3-), the domain-wide precipitation changes by about 5%. Analysis of the model results reveals that the Rocky Mountain region and Front Range environment is not conducive for convective invigoration to play a major role, in increasing precipitation, as seen in some other studies. When localized organic aerosol emission are increased to mimic new particle formation, the resulting increased aerosol loading leads to increases in domain-wide precipitation, opposite to what is seen in the model simulations with changed boundary and initial conditions

A Case of IgE Myeloma: Methodology and Review of the Literature

A 56-year-old man presented with a one-year history of progressive weakness predominantly affecting his extremities and persistent low back pain. Ouchterlony immunodiffusion of the concentrated urine detected a marked increase in lambda light chains. A sternal bone marrow documented a diagnosis of multiple myeloma. Screening high resolution agarose gel electrophoresis revealed diffuse hypogammaglobulinemia and, retrospectively, an equivocal, faint band which migrated in the fast gamma region. By using a combination of Immunoelectrophoresis and immunofixation electrophoresis, this questionable band was determined to represent an IgE lambda monoclonal protein. Radioimmunoassay for IgE documented a serum concentration of 50.6 mg/dl. No intact IgE was found in the urine. Following chemotherapy, the patient\u27s serum IgE level decreased significantly, and he is presently asymptomatic. Features of special interest in this case include the low serum IgE level on presentation, which was difficult to detect on the screening electrophoretogram, and the use of immunofixation electrophoresis in the detection and characterization of these difficult gammopathies

Aortic cusp extension valvuloplasty with or without tricuspidization in children and adolescents: Long-term results and freedom from aortic valve replacement

ObjectiveAortic cusp extension valvuloplasty is increasingly used in the management of children and adolescents with aortic stenosis or regurgitation. The durability of this approach and the freedom from valve replacement are not well defined. A study was undertaken to investigate outcomes.MethodsFrom July 1987 to November 2008, 142 patients aged less than 19 years underwent aortic cusp extension valvuloplasty in the form of pericardial cusp extension and tricuspidization (when needed). Three patients with truncus arteriosus and severe truncal valve insufficiency were excluded. From the available follow-up data of 139 patients, 50 had bicuspid aortic valves, 40 had congenital aortic valve stenosis, 41 had combined congenital aortic valve stenosis/insufficiency, and 8 had other diagnoses. Median follow-up was 14.4 years (0.1–21.4). Long-term mortality and freedom from aortic valve replacement were studied.ResultsThere were no early, intermediate, or late deaths. Z-values of left ventricular end-diastolic dimension, aortic annulus, aortic sinus diameter, and sinotubular junction diameter before aortic valve replacement were 4.2 ± 3.11, 2.3 ± 1.25, 4.4 ± 1.23, and 1.84 ± 1.28, respectively. During the follow-up period, 64 patients underwent aortic valve reinterventions. The Ross procedure was performed in 32 of 139 patients (23%) undergoing aortic cusp extension valvuloplasty. Other aortic valve replacements were undertaken after 16 aortic cusp extension valvuloplasties (11.5%). Freedom from a second aortic cusp extension valvuloplasty or aortic valve replacement at 18 years was 82.1% ± 4.2% and 60.0% ± 7.2%, respectively.ConclusionAortic cusp extension valvuloplasty is a safe and effective surgical option with excellent survival and good long-term outcomes in children and adolescents. The procedure provides acceptable durability and satisfactory freedom from aortic valve replacement

Spectral discrimination of breast pathologies in situ using spatial frequency domain imaging

Introduction: Nationally, 25% to 50% of patients undergoing lumpectomy for local management of breast cancer require a secondary excision because of the persistence of residual tumor. Intraoperative assessment of specimen margins by frozen-section analysis is not widely adopted in breast-conserving surgery. Here, a new approach to wide-field optical imaging of breast pathology in situ was tested to determine whether the system could accurately discriminate cancer from benign tissues before routine pathological processing. Methods: Spatial frequency domain imaging (SFDI) was used to quantify near-infrared (NIR) optical parameters at the surface of 47 lumpectomy tissue specimens. Spatial frequency and wavelength-dependent reflectance spectra were parameterized with matched simulations of light transport. Spectral images were co-registered to histopathology in adjacent, stained sections of the tissue, cut in the geometry imaged in situ. A supervised classifier and feature-selection algorithm were implemented to automate discrimination of breast pathologies and to rank the contribution of each parameter to a diagnosis. Results: Spectral parameters distinguished all pathology subtypes with 82% accuracy and benign (fibrocystic disease, fibroadenoma) from malignant (DCIS, invasive cancer, and partially treated invasive cancer after neoadjuvant chemotherapy) pathologies with 88% accuracy, high specificity (93%), and reasonable sensitivity (79%). Although spectral absorption and scattering features were essential components of the discriminant classifier, scattering exhibited lower variance and contributed most to tissue-type separation. The scattering slope was sensitive to stromal and epithelial distributions measured with quantitative immunohistochemistry. Conclusions: SFDI is a new quantitative imaging technique that renders a specific tissue-type diagnosis. Its combination of planar sampling and frequency-dependent depth sensing is clinically pragmatic and appropriate for breast surgical-margin assessment. This study is the first to apply SFDI to pathology discrimination in surgical breast tissues. It represents an important step toward imaging surgical specimens immediately ex vivo to reduce the high rate of secondary excisions associated with breast lumpectomy procedures

Wet scavenging of soluble gases in DC3 deep convective storms using WRF-Chem simulations and aircraft observations

We examine wet scavenging of soluble trace gases in storms observed during the Deep Convective Clouds and Chemistry (DC3) field campaign. We conduct high-resolution simulations with the Weather Research and Forecasting model with Chemistry (WRF-Chem) of a severe storm in Oklahoma. The model represents well the storm location, size, and structure as compared with Next Generation Weather Radar reflectivity, and simulated CO transport is consistent with aircraft observations. Scavenging efficiencies (SEs) between inflow and outflow of soluble species are calculated from aircraft measurements and model simulations. Using a simple wet scavenging scheme, we simulate the SE of each soluble species within the error bars of the observations. The simulated SEs of all species except nitric acid (HNO_3) are highly sensitive to the values specified for the fractions retained in ice when cloud water freezes. To reproduce the observations, we must assume zero ice retention for formaldehyde (CH_2O) and hydrogen peroxide (H_2O_2) and complete retention for methyl hydrogen peroxide (CH_3OOH) and sulfur dioxide (SO_2), likely to compensate for the lack of aqueous chemistry in the model. We then compare scavenging efficiencies among storms that formed in Alabama and northeast Colorado and the Oklahoma storm. Significant differences in SEs are seen among storms and species. More scavenging of HNO_3 and less removal of CH_3OOH are seen in storms with higher maximum flash rates, an indication of more graupel mass. Graupel is associated with mixed-phase scavenging and lightning production of nitrogen oxides (NO_x), processes that may explain the observed differences in HNO_3 and CH_3OOH scavenging

Fair Value Accounting, Earnings Management and the use of Available-for-Sale Instruments by Bank Managers

Fair value accounting in banking has been criticized for the increased volatility that it generates in some accounting variables. One of its advantages, however, is that it reduces the possibility of discretionary earnings management, given that all gains and losses are immediately recognized. In this paper we qualify both considerations. The accounting regime of available-for-sale (AFS) securities allows for some degree of earnings and capital management: an AFS asset is reported at fair value but gains and losses over historical cost go into net income and measures of regulatory capital only when the asset is sold and the gain or loss realized. We use comprehensive data from US commercial banks and bank holding companies and provide evidence that fair value gains in AFS assets have consistently been used for earnings and capital management and that the holdings of AFS assets are related to the intensity of this activity. Our results show that the earnings management behavior is present both in listed and non-listed banks, suggesting that the motivations go beyond the incentives provided by capital markets. We also uncover significant differences in earnings management behavior over the years of the financial crisis

A picture paints a thousand words: Heart drawings reflect acute distress and illness perception and predict posttraumatic stress symptoms after acute myocardial infarction

The aim of this study was to examine whether heart drawings of patients with acute myocardial infarction reflect acute distress symptoms and negative illness beliefs and predict posttraumatic stress symptoms 3 months post-myocardial infarction. In total, 84 patients aged over 18 years drew pictures of their heart. The larger the area drawn as damaged, the greater were the levels of acute distress (r = 0.36; p < 0.05), negative illness perceptions (r = 0.42, p < 0.05), and posttraumatic stress symptoms (r = 0.54, p < 0.01). Pain drawings may offer a tool to identify maladaptive cognitions and thus patients at risk of posttraumatic stress disorder