1,829 research outputs found

    Unequal Impact of Conservatism on Accrual Measures and Drivers: Implications for the Specification of Accrual Models

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    This study makes two main contributions to the literature. Firstly, it tests empirically the relative timeliness of accrual measures and earnings components used as explanatory variables in accrual models (“accrual drivers”) regarding the impact of conservatism. Secondly, taking into account the empirical evidence on such a timeliness, it discusses intuitively potential implications for the specification of (traditional) accrual models and the quality of discretionary accrual estimates. It concludes that common accrual models, as Jones (1991), are misspecified. They have a dependent variable (accruals) asymmetrically affected by conservatism, and one or more explanatory variables that are not affected, inducing a non-systematic measurement error in estimating discretionary accruals.accruals; accrual models; discretionary accruals; conservatism.

    Cross-Border Information Transfers: Evidence from Profit Warnings Issued by European Firms

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    This paper reports evidence on cross-border accounting information transfers associated with profit warning announcements. Using a sample of firms from 29 European countries, we find that negative earnings surprises disclosed by firms in one country affect investors’ perceptions of comparable nonannouncing firms in other countries. The form and magnitude of cross-border effects is consistent with domestic transfers. Tests explaining variation in cross-border information transfers provide some (albeit rather limited) evidence that effects vary according to a range of firm-, industry- and country-level characteristics.Information transfers; Profit warnings

    Fish into Wine: The Historical Anthropology of Demand for Alcohol in Seventeenth-Century Newfoundland

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    A strong demand for alcohol and tobacco in seventeenth-century Newfoundland and throughout the North American fishing periphery is an example of the distinct role maritime communities played in the emergence of a consumer society. Exchange of these little luxuries served social and cultural as well as economic needs. Demand for red wines and brandy in particular reflected contemporary humoral theories about the human metabolism. In this period, distribution, no less than restriction, of alcohol can be seen as a form of social control.Au XVIIe siĂšcle, Ă  Terre-Neuve et dans la zone de pĂȘche de l'AmĂ©rique du Nord, l'importante demande d'alcool et de tabac tĂ©moigne du rĂŽle distinct que jouaient les collectivitĂ©s maritimes dans l'apparition de la sociĂ©tĂ© de consommation. L'Ă©change de ces petits luxes comblait les besoins sociaux, culturels et Ă©conomiques. La demande de vins rouges et de brandy en particulier confirmait les thĂ©ories contemporaines sur le mĂ©tabolisme de l'homme. Il est possible de considĂ©rer la distribution comme la restriction de l'alcool Ă  cette Ă©poque comme une forme de contrĂŽle social

    THE DETERMINANTS OF THE GOING PUBLIC DECISION: EVIDENCE FROM THE U.K.

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    Several theoretical papers have addressed the question of why firms raise public equity. However, direct empirical evidence on the characteristics of firms going public is scarce and limited to non-Anglo-Saxon contexts. Our research combines the analysis of ex ante and ex post characteristics of Initial Public Offering (IPO) companies to cast more light on the determinants of the going public decision in the UK. Some of our findings are consistent with prior empirical studies in other contexts: IPO probability depends positively on firm size and stock price levels. Results also suggest that a firm?s need to finance investments is not the main motive to go public, although this reason underlies the going public decision in a number of UK firms. Besides, contrary to the evidence shown by Pagano et al. (1998) for Italian IPOs, we find that UK firms do not go public to reduce debt since leverage is negatively related to the probability of going public. Finally, the relationship between profitability and the likelihood of an IPO for our whole IPO sample is negative and significant. Whether firms that go public have higher investment rates than other firms, as is the case of our survivor IPOs, the negative effect of profitability on the probability of going public may reflect the fact that these firms cannot yield sufficient internal funds to finance large investments. In fact, the relationship between profitability and the likelihood of an IPO becomes significantly positive for our acquired IPO group, where investment opportunities variables have no significant effect on the going public decision. This result is consistent with the portfolio rebalancing motive to go public.Initial Public Offerings, the Going Public Decision.

    Earnings Management to Avoid Losses: a cost of debt explanation

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    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?

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    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

    How Unreliable Factfinding Can Undermine Sentencing Guidelines

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