The Market Reaction Associated With SFAS No.8 And SFAS No.52: Did Investors Recognize Differential Economic Content Of Translation Gains And Losses?

This study uses the SFAS No.52 functional currency designation as a proxy for the varying economic content of Temporal Method translation gains and losses to refine tests of the market reaction to SFAS No.8 and subsequent foreign currency translation policy events.  We observe that dollar functional currency MNEs having by definition a relatively greater degree of short-term cash flow exposure are more negatively impacted by accounting policy events beginning with the SFAS No.8 Exposure Draft and extending through the SFAS No.52 Exposure Draft than are local currency functional currency firms having by definition a relatively lesser degree of short-term currency exposure.  Our results are consistent with intuition suggesting that local currency functional currency firms are negatively impacted only by the adverse earnings implications of largely unrealized translation gains and losses induced by SFAS No.8;  a condition subsequently alleviated by SFAS No.52.  Dollar functional currency firms, on the other hand, are negatively impacted by the earnings effects of floating exchange rates on near-term entity cash flows and the largely realized translation gains or losses taken to income under SFAS No.8;  a condition unchanged by SFAS No.52.  We conclude that investors did discern the differential degree of MNEs currency exposure relative to the Temporal Method, and that the SFAS No.52 functional currency designation was a relatively important source of information concerning the assessment of the exchange rate exposure of the U.S.-based MNEs

The Real Options Solution To A Cost-Of-Capital Dilemma

The required rate of return should equal the average expected return in the market for the same level of risk.  However, firms should only accept such projects with expected returns that exceed this required rate of return.  This contradicts our first statement that the required rate of return equals this average expected return for the market.  We study this possible paradox in the context of a stochastic general-equilibrium model with endogenous prices.  We find that the capitalization of the real options involved in this model explains away this contradiction or paradox

Predicting Impending Bankruptcy From Auditor Qualified Opinions And Audit Firm Changes

Unlike prior research, we investigate the incremental explanatory power of both auditor qualified opinions and auditor changes beyond the information conveyed by traditional financial statement ratios in predicting bankruptcy. We find that qualified auditor opinion and auditor changes are both important in predicting impending bankruptcy and that auditor changes convey important information not reflected in auditor qualified opinions alone.  In fact, we find compelling evidence that auditor changes provide incremental explanatory power in predicting impending firm failure beyond what is conveyed by auditor qualified opinions and traditional financial statement ratios considered jointly.  Although the existing relevant literature provides no empirical evidence in this regard to our knowledge, this result is intuitive as one motivation for clients to change audit firms is to seek less conservative professional auditors as a strategic response to manifestation of the financial statement effects of bankruptcy

ADR Accounting Principles Choice And The Market Reaction To Form 20-F

In this study, we conjecture that non-U.S. firms, choosing to be listed on the major U.S. exchanges, will incur the added costs associated with the supplemental disclosure requirements in order to get that information impounded in the home country equity share price via the ADR share price in the manner described by Fishman and Hagerty (1989).  More specifically, we evaluate the equity share response to U.S.-listed ADR Form 20-F filing in a manner similar to Chen and Sami (2009, 2008) anticipating that the incremental disclosures will prompt ADR and equity security share responses.  Unlike prior studies, we investigate whether the Form 20-F filings prompt U.S. dominant cross-market information flows from the ADR share market back to the home country equity share market proportional to the incremental Form 20-F information.  We employ bivariate and single equation models of the cross-market ADR and equity security share response to the filing, controlling for the firm-specific Form 20-F accounting principles choice.  Preliminary results indicate that both ADR and equity security share markets respond to the Form 20-F filing.  There is a strong indication that the U.S. ADR share market response dominates the cross-market information flow driving the home country equity share market response.  Furthermore, we find that the cross-market response to ADR Form 20-F filing is not equal across the three available accounting principle choices in either the ADR share market or the home country equity share market. Our results are consistent with U.S. GAAP conveying the most of new price relevant information, IFRS, and local accounting standards being informative but not to the same extent

An Investigation Of The Comparative Accuracy And Bias Of Equity Securities Analysts East And West European Firms Earnings Forecasts

This research investigates the comparative accuracy and bias of West European and East European firms equity securities analysts earnings forecasts for 29 European countries 12 of which are characterized as being East European.  We utilize measures of equity securities analysts earnings forecast accuracy and bias in making comparisons of the statistical properties of earnings forecasts for firms having domiciles in East European and West European countries.  Our results indicate that securities analysts earnings forecasts for companies domiciled with East European countries display larger forecast error and greater degree of optimistic forecast bias.  Our results persist after controlling for cross-listing of ADRs on US securities exchanges. We generalize our results using the growing literature on the ever-changing characteristics of the Russian people, Russian business professionals and the rapidly evolving Russian stock market and the transitional Russian political economy

An Investigation Of The Impact Of Degree Of IFRS Implementation On The Comparative Accuracy And Bias Of Equity Securities Analysts East And West European Firms Earnings Forecasts

This research investigates the comparative impact of country specific degree of IFRS implementation upon the accuracy and bias of West European and East European firms equity securities analysts earnings forecasts for 29 European countries 12 of which are characterized as being East European.  We utilize measures of equity securities analysts earnings forecast accuracy and bias in making comparisons of the impact of country specific degree of IFRS implementation upon the statistical properties of earnings forecasts for firms having domiciles in East European and West European countries.  Our results indicate that (1) analysts earnings forecast accuracy and earning forecast bias decreases in the sense that their association with magnitudes earnings changes decreases in relation with country specific degree of implementation of IFRS and (2) the degree of reduction in analysts earnings forecast accuracy and bias is statistically more pronounced for East European firms than for West European Firms.  Our results persist after controlling for cross-listing of ADRs on US securities exchanges.   Bases upon this evidence we conclude that the benefits of implementation of IFRS is marginally greater for East European firms that for West European firms

An Investigation Into the Usefulness of Publicly Disclosed Accounting Earnings Data in Valuing the Foreign Operations of U.S.-based Multinational Enterprises

158 p.Thesis (Ph.D.)--University of Illinois at Urbana-Champaign, 1987.This study investigates the usefulness of accounting data in valuing the foreign operations of U.S.-based MNEs. This task is carried out by examining the relationship between three sets of variables. The three sets are: (1) conditions in the economic environment, (2) accounting data, and (3) economic constructs. The conditions in the economic environment are hypothesized as being reflected in the accounting data. The accounting data, in turn, are hypothesized as being reflected in the economic variables.The investigation of these relationships is carried out using a simultaneous equations approach to statistical estimation. The jointly-determined variables are economic variables. The independent variables are accounting variables. The usefulness of the accounting data in assessing the economic relationships and prevailing conditions in the economic environment is evaluated via the sign and magnitude of the coefficients. Hypotheses concerning these coefficients are derived a priori from the extant literature.The results of the statistical tests of hypotheses indicate the accounting data are significantly related to the economic variables, and the economic variables are significantly related to one another. The accounting data are related to the economic variables as expected. However, the economic variables reflect the effects of segmentation.The conclusions are that: (1) accounting data are useful in assessing the economic profits accruing to MNEs, (2) accounting data may be useful in assessing the riskiness of those profits, though additional research is required, (3) accounting data are useful in valuing the foreign operations of MNEs, (4) competition among MNEs may have eroded the premium attributable to financial intermediation, (5) segmentation may be high, and (6) there is incentive for MNEs to take on additional operating systematic risk.U of I OnlyRestricted to the U of I community idenfinitely during batch ingest of legacy ETD

The Impact Of Options Listing Upon The Optimistic Bias In Analysts Quarterly Earnings Forecasts

We provide evidence that firms options listing increases the divergence of analysts opinions and, at the same time, leads to a reduction in the systematic optimistic bias in an important element of the market expectation of earnings, analysts consensus earnings forecasts. Our contribution is added insight into how the increased divergence of analysts opinions following options listing drives a reduction of systematic optimistic bias in consensus analysts forecasts

An Investigation Of The Comparative Impact Of Degree Of Implementation Of IFRS Upon The Public And Private Information Quality Of Asia Pacific Country Firms

This research investigates the comparative quality of public and private information environments between firms domiciled in 15 Asia Pacific countries of which seven are characterized as market supportive institutional infrastructure.  Our empirical analyses examine the comparative quality of public and private information components of equity securities analysts’ earnings forecasts for Asia Pacific firms, while controlling for firms cross-listing on U.S. equity securities exchanges and  country of domicile degree of implementation of IFRS.  Our results indicate that the quality of private information is higher for non-market supportive infrastructure countries, as compared to market-supportive infrastructure countries of domicile, and the quality of public information is higher for market-supportive infrastructure as compared to non-market-supportive infrastructure countries of domicile.  Furthermore, and particularly noteworthy, is that our results indicate that country of domicile degree of implementation of IFRS increases the quality of public information and decreases the quality of private information for both market-supportive infrastructure and non-market-supportive infrastructure countries of domicile, and also that the decrease in the quality of private and increase in the quality of public information associated with degree of implementation of IFRS are significantly more pronounced for market-supportive infrastructure countries relative to non-market-Supportive infrastructure countries of domicile.  We believe that our results suggest that IFRS is more beneficial for countries having market supportive institutional infrastructure in place as compared with those who do not

The differential effect of directional unexpected earnings and post-earnings announcement drift behaviour

This research investigates whether the post-earnings announcement equity security price return drift is monotonic but (1) at a different rate than at the time of the earnings announcement, and (2) at different rates for positive unexpected earnings and negative unexpected earnings. Our results indicate that the post-earnings announcement equity security price return drift amplifies the equity security return reaction at the time of the earnings announcement for negative earnings changes. However, post-earnings announcement equity security price return drift reverses the equity security return reaction at the time of the earnings announcement for positive unexpected earnings. Implications of our research results for equity security return drift, reversal, and volatility are that equity security prices under-react at the time of the earnings announcement to negative unexpected earnings and over-react at the time of the earnings announcement to positive unexpected earnings.post earnings announcement drift; market efficiency; investors' expectations; trading volume; equity security returns; unexpected earnings.