Expensing of share-based payments and its impact on large UK companies

This paper investigates the impact of one of the most controversial and strongly-opposed accounting standards of recent years affecting UK companies, IFRS 2/FRS 20. The standard requires the expensing of share-based payments. The findings of the study show that the accounting standards IFRS 2/FRS 20 have had only a modest impact upon selected performance measures. Findings of this research are out of line with previous studies, which examined the position prior to the implementation of mandatory expensing and mainly cover other countries. Given the modest impact, a question arises as to why the standard was opposed so strongly. It could be concluded that the impact of the standard was overstated to fuel opposition

Conversion, Performance and Executive Compensation in UK Building Societies

Interest in the causes of the conversion of building societies from a mutual to a proprietary form of ownership has grown in recent years. In this study, one of a number of possible explanations underlying the conversion of building societies is examined; namely, the potential for directors to enhance their remuneration once plc status has been achieved. Empirical tests indicate that the large increases in remuneration for converted building society boards and chief executives are not justified in terms of company performance and may, indeed, have been a factor driving the conversion of building societies. Copyright Blackwell Publishing Ltd. 2004.

The context of earnings management and its ability to predict future stock returns

This paper constructs a signal-based composite index, namely ESCORE, which captures the context of earnings management. Specifically, ESCORE aggregates 15 individual signals related to both accrual and real earnings management based on prior relevant literature. After establishing that ESCORE is capable of capturing the context in which earnings management is more likely to occur, the study finds that low ESCORE firms outperform those with high ESCORE by an average of 1.37% per month after controlling for risk loadings on the market, size, book-to-market and momentum factors up to one year after portfolio formation in the UK. This finding implies that investors tend to ignore the observable context of earnings management. In addition, with ESCORE model, investors do not need to estimate the magnitude of earnings management, rather it is sufficient to look at the surrounding context to differentiate between low and high earnings management firms. Finally, when tested using the US data, most of the main results of the study appear to hold

Does earnings management spread through board interlocks?

The paper investigates whether aggressive earnings management practices spread across firms sharing interlocked directors. The evidence shows that if a firm aggressively manages earnings via accruals (or production activities and discretionary expenses) manipulation in a year, any firms which are interlocked with the firm in that year and the two following years are more likely to aggressively manage earnings via accruals (or production activities and discretionary expenses, respectively) manipulation. The contagion effect is found to be more pronounced if the interlocked director is older or charged with duties which could influence financial reporting. The spread of accruals-based and real earnings management practices via board networks as evidenced in this paper implies that allowing the ‘small world’ of board directors to serve in several companies would be harmful for financial information users

The long run performance of UK firms making multiple rights issues

This study examines the long run performance of firms offering multiple rights issues in the UK and differentiates between one-time and multiple issuers. By analysing a sample of 1146 rights issues offered by 788 London Stock Exchange listed industrial companies between 1988 and 2008, this study reports that firms making multiple rights issues do not experience significant long run underperformance following the third or subsequent issues. However, the one-time rights issuers do experience underperformance during the sample period. The findings of this study thus imply that those firms which are making multiple rights issues are of better quality and investors could avoid loses by investing in firms which had made more than one rights issue in the past. The results also suggest that researchers which are intending to examine the long run post-event performance of firms should control the incidence of similar events that had happened in previous years