Balance Sheet Classification Shifting and Non-Articulation

Research strongly suggests non-articulation is an effective indication of the reporting quality of both the cash flow statement (Gong et al. 2014) and income statement (Collins et al. 2015). I complete the financial reporting circle by examining the association between non-articulation and the reporting quality of the balance sheet, captured by way of classification shifts across balance sheet items. I first develop a measure of balance sheet classification shifting. I proceed to examine whether a working-capital deficit influences the association between non-articulation and balance sheet classification shifting. Results indicate that balance sheet classification shifting contributes to non-articulation. This study contributes to the classification shifting literature by developing a new classification shifting measure for the balance sheet; and to the non-articulation literature by demonstrating an association between balance sheet reporting quality and non-articulation magnitude. It also provides empirical evidence important to the proposed update of the debt accounting standards (Topic 470), “Simplifying the classification of debt in a classified balance sheet (current versus noncurrent).

Other Comprehensive Income and the Market's Processing of Earnings Information

This study examines whether OCI items impact the market’s ability to process earnings in the contexts of uncertainty/disagreement among market participants and value-relevance. We find that earnings and OCI gains and losses are individually associated with reduced market uncertainty/disagreement and are positively impounded into share prices by investors. However, we also find that both OCI gains and (especially) losses interact with earnings, weakening 1) the negative relation between earnings and market uncertainty/disagreement and 2) the value-relevance of earnings. Further, we find that the apparent effects of OCI gains and losses on the market’s processing of earnings information are stronger in weak information environments, as measured by analyst following. Our findings suggest that OCI conveys information to the market that is useful but also noisy, thereby potentially hindering the market’s ability to interpret earnings, particularly in weaker information environments