Earnings Management to Avoid Losses: a cost of debt explanation

In this paper we analyze firms’ earnings management behavior to avoid losses conditional on the (asymmetric) incentive underlying market (positive/negative) returns. Our intuition is that firms with negative returns in the period (bad news, BN) face a higher incentive to undertake earnings management, and that their ultimate intention is to hide from credit markets a signal (loss) that could be translated into a negative impact on their cost of debt. The empirical evidence supports this intuition. BN firms show higher earnings management pervasiveness than their counterparts with good news (GN), and the set with simultaneous BN and prior period positive earnings undertake more pervasive earnings manipulation than BN firms in general. Within this restricted set of firms, and consistent with a cost of debt explanation, we find that firms with larger needs of debt show a higher incidence of earnings management to avoid losses. The overall empirical evidence challenges the implicit assumption in Burgstahler and Dichev (1997) that the incentive to manage earnings is homogeneous to all firms, and suggests that the discontinuities around zero in the earnings distributions are driven, at least partly, by firms’ earnings management behavior.earnings management, earnings thresholds, earnings discontinuities, cost of debt

Piecewise Linear Accrual Models: do they really control for the asymmetric recognition of gains and losses?

The asymmetric recognition of gains and losses underlying conservative accounting is not taken into account by Jones (1991)-type accrual models. Recently, Moreira (2002) and Ball and Shivakumar (2005a) have proposed piecewise linear accrual models designed to control for this asymmetric impact. Our paper first discusses the sign of the expected measurement error in discretionary accruals (DAC) estimates when models do not control for the asymmetry underlying conservatism. We find that DAC in firms with bad news (BN) are expected to be understated, while those in good news (GN) firms will be overstated. Based on this original result we empirically test, using graphical and statistical tools, whether piecewise linear accrual models correct such a measurement error. The empirical evidence shows mixed results. For GN firms the estimates are corrected downwards, as expected; for BN firms, unexpectedly, part of the estimates is also corrected downwards. The reason for this unexpected result seems to lie in a non-linear relationship between accruals and the proxy for BN that the models are unable to control for. Thus, DAC estimates under piecewise linear models are not deemed to be of better quality than those of traditional accrual models.accrual models; piecewise linear accrual models; conservatism; earnings management

Discretionary accruals : the measurement error induced by conservatism

This paper discusses the sign of the expected measurement error in discretionary accruals (DAC) estimates when accrual models do not control for the asymmetric treatment of gains and losses underlying conservatism. I show that DAC in firms with "bad news" are expected to be understated (positive measurement error), while those in "good news" firms will be overstated (negative measurement error). Based on this original result, and using graphical analysis, I discuss an empirical illustration, which corroborates the expectations

Statistical Signs of Social Influence on Suicides

Certain currents in sociology consider society as being composed of autonomous individuals with independent psychologies. Others, however, deem our actions as strongly influenced by the accepted standards of social behavior. The later view was central to the positivist conception of society when in 1887 \'Emile Durkheim published his monograph Suicide (Durkheim, 1897). By treating the suicide as a social fact, Durkheim envisaged that suicide rates should be determined by the connections (or the lack of them) between people and society. Under the same framework, Durkheim considered that crime is bound up with the fundamental conditions of all social life and serves a social function. In this sense, and regardless of its extremely deviant nature, crime events are somehow capable to release certain social tensions and so have a purging effect in society. The social effect on the occurrence of homicides has been previously substantiated (Bettencourt et al., 2007; Alves et al., 2013), and confirmed here, in terms of a superlinear scaling relation: by doubling the population of a Brazilian city results in an average increment of 135 % in the number of homicides, rather than the expected isometric increase of 100 %, as found, for example, for the mortality due to car crashes. Here we present statistical signs of the social influence on the suicide occurrence in cities. Differently from homicides (superlinear) and fatal events in car crashes (isometric), we find sublinear scaling behavior between the number of suicides and city population, with allometric power-law exponents, $\beta = 0.836 \pm 0.009$ and $0.870 \pm 0.002$, for all cities in Brazil and US, respectively. The fact that the frequency of suicides is disproportionately small for larger cities reveals a surprisingly beneficial aspect of living and interacting in larger and more complex social networks.Comment: 7 pages, 4 figure

A adoção do padrão internacional de relatórios financeiros em portugal: podem os custos esperados ser reduzidos?

In this paper we use a cost-benefit framework to discuss some of the expected effects related to the Portuguese adoption of the International Financial Reporting Standards (IFRS). Given the circumstances underlying this implementation, we anticipate that the overall net result following an analysis of costs and benefits will be negative. Therefore, we also examine what seems to be the causal factor behind this outcome and a potential way of reducing the net cost of adopting the IFRS. The costs are related to the professional updating of accounting skills of those directly or indirectly involved in the accounting process. A part of these costs will be incremental and permanent over time mainly due to the fact that two accounting systems will be kept in place. The adoption of a single accounting system, that based on the IFRS, would appear to be a possible solution to reduce such costs

Non-Local Product Rules for Percolation

Despite original claims of a first-order transition in the product rule model proposed by Achlioptas et al. [Science 323, 1453 (2009)], recent studies indicate that this percolation model, in fact, displays a continuous transition. The distinctive scaling properties of the model at criticality, however, strongly suggest that it should belong to a different universality class than ordinary percolation. Here we introduce a generalization of the product rule that reveals the effect of non-locality on the critical behavior of the percolation process. Precisely, pairs of unoccupied bonds are chosen according to a probability that decays as a power-law of their Manhattan distance, and only that bond connecting clusters whose product of their sizes is the smallest, becomes occupied. Interestingly, our results for two-dimensional lattices at criticality shows that the power-law exponent of the product rule has a significant influence on the finite-size scaling exponents for the spanning cluster, the conducting backbone, and the cutting bonds of the system. In all three cases, we observe a continuous variation from ordinary to (non-local) explosive percolation exponents.Comment: 5 pages, 4 figure

Os efeitos-colaterais psiquiátricos do rimonabanto

OBJECTIVE: Experimental evidence has suggested that drugs that enhance cannabinoid type-1 (CB1) receptor activity may induce anxiolytic and antidepressant effects, whilst the opposite has been reported with antagonists. Thus, the objective of the present review is to discuss the potential psychiatric side-effects of CB1 receptor antagonists, such as rimonabant, which has been recently marketed in several countries for the treatment of smoking cessation, obesity and associated metabolic disorders. METHOD: Literature searches were performed in PubMed and SciELO databases up to February 2009. The terms searched were "obesity", "rimonabant", "cannabinoids", "unwanted effects", "diabetes", "smoking cessation" and "side-effects". RESULTS: Clinical trials have revealed that rimonabant may promote weight loss in obese patients, although it may also induce symptoms of anxiety and depression. DISCUSSION: Patients taking CB1 receptor antagonists should be carefully investigated for psychiatric side-effects. These drugs should not be prescribed for those already suffering from mental disorders. Nevertheless, the development of new compounds targeting the endocannabinoid system for the treatment of several conditions would be necessary and opportune.OBJETIVO: Evidência experimental sugere que drogas que aumentam a atividade dos receptores canabinóides tipo 1 (CB1) podem induzir efeitos ansiolíticos ou antidepressivos, enquanto que o oposto tem sido relatado com antagonistas. Assim, o objetivo da presente revisão é discutir os potenciais efeitos-colaterais psiquiátricos de antagonistas do receptor CB1, como o rimonabanto, que foi recentemente liberado para comercialização em diversos países para o tratamento do tabagismo, obesidade e de desordens metabólicas associadas. MÉTODO: Foi realizada uma busca na literatura no PubMed e Scielo até fevereiro de 2009, com os termos "obesity", "rimonabant", "cannabinoids", "unwanted effects", "diabetes" , "smoking cessation" e "side effects". RESULTADOS: Ensaios clínicos revelaram que o rimonabanto pode produzir perda de peso em pacientes obesos, embora também possa induzir sintomas de ansiedade e depressão. DISCUSSÃO: Pacientes tomando antagonistas do receptor CB1 devem ser cuidadosamente examinados quanto aos efeitos-colaterais psiquiátricos. Estas drogas não devem ser prescritas a indivíduos que já sofrem de transtornos mentais. Entretanto, o desenvolvimento de novos compostos que atuem no sistema endocanabinóide para o tratamento das mais diversas condições parece necessário e oportuno