ACC587 ... Shannon, Donald S.

ACCOUNTING INFORMATION & CAPITAL MARKETS

SOME SUGGESTIONS FOR TOPICS

Browse the following titles to see if you find any of them interesting. Complete abstracts are shown below the list of titles.

 

TITLES

 

 

ABSTRACTS

 

AUTHOR: Baginski, Stephen P Hassell, John M

TITLE: DETERMINANTS OF MANAGEMENT FORECAST PRECISION

CITATION: Accounting Review. v72n2. Apr 1997. p. 303-312, 10 pages.

DESCRIPTORS: Studies; Earnings forecasting; Accuracy; Disclosure; Economic models; Regression analysis

CLASS DESCR: (9190) United States; (9130) Experimental/theoretical treatment; (3400) Investment analysis;

ABSTRACT: Pownall et al. (1993) document that nearly 80% of their sample of voluntary management earnings forecasts are not precise point forecasts. Imprecise forecast forms include closed-interval forecasts, open- interval forecasts, and general impressions about firms' earnings prospects. Cross-sectional logistic regressions are performed to document determinants of forecast precision. The sample consists of 1,212 annual and interim management forecasts. After controlling for firm-specific and horizon-specific earnings uncertainty, it is found that managers produce more precise forecasts of annual earnings for firms with greater analyst following and for smaller firms. The results are robust across subsamples. The majority of the results, however, do not hold for interim forecasts.

 

 

AUTHOR: Hunton, James E McEwen, Ruth Ann

TITLE: AN ASSESSMENT OF THE RELATION BETWEEN ANALYSTS' EARNINGS FORECAST ACCURACY, MOTIVATIONAL INCENTIVES AND COGNITIVE INFORMATION SEARCH STRATEGY

CITATION: Accounting Review. v72n4. Oct 1997. p. 497-515, 19 pages.

DESCRIPTORS: Studies; Earnings forecasting; Cognition & reasoning

CLASS DESCR: (9190) United States; (9130) Experimental/theoretical treatment; (2500) Organizational behavior; (4120)

ABSTRACT: Prior research indicates that analysts' forecasts of earnings tend to be optimistic. This optimism may be attributed to experience, cognitive information search strategies, motivational incentives or some combination thereof. A study involves an experiment that uses a computerized eye-movement retinal imaging system to capture the cognitive search strategy of 60 financial analysts. Findings indicate that more accurate analysts employ a directive information search strategy, whereas less accurate analysts employ a sequential search strategy.

 

 

AUTHOR: Abarbanell, Jeffery S Bushee, Brian J

TITLE: ABNORMAL RETURNS TO A FUNDAMENTAL ANALYSIS STRATEGY

CITATION: Accounting Review. v73n1. Jan 1998. p. 19-45, 27 pages.

DESCRIPTORS: Studies; Securities analysis; Rates of return; Earnings forecasting; Portfolio management; Economic models

CLASS DESCR: (9190) United States; (9130) Experimental/theoretical treatment; (3400) Investment analysis; (1130) Economic theory;

ABSTRACT: This paper examines whether the application of fundamental analysis can yield significant abnormal returns. Using a collection of signals that reflect traditional rules of fundamental analysis, portfolios are formed that earn an average 12-month cumulative size-adjusted abnormal return of 13.2%. Evidence is found that the fundamental signals provide information about future returns that is associated with future earnings news. Moreover, a significant portion of the abnormal returns is generated around subsequent earnings announcements. These findings are consistent with the underlying focus of fundamental analysis on the prediction of earnings. Significant abnormal returns to the fundamental strategy are not earned after the end of one year of return cumulation, indicating little support for the idea that the signals capture information about multiple-year-ahead earnings not immediately impounded in price or about long-term shifts in firm risk. ^PP

 

 

AUTHOR: Prather, Laurie Bertin, William J

TITLE: HAVING YOUR CAKE AND EATING IT TOO: HOW TO GET THE MOST FROM YOUR INVESTMENTS

CITATION: Journal of Financial Planning. v11n1. Feb 1998. p. 82-88, 7 pages.

DESCRIPTORS: Studies; Securities analysis; Portfolio management; Asset allocation; Rates of return; Investment policy

CLASS DESCR: (3400) Investment analysis; (9130) Experimental/theoretical treatment; (9190) United States;

ABSTRACT: A study examines an investment strategy and provides financial planners and investors with a simple trading rule based on fundamental economic principles. The underlying rationale is that directional changes in interest rates will signal future stock market trends. The trading strategy tested is shown to be successful in achieving a seemingly impossible outcome: the realization of above market returns with below-market risk. This strategy gives professional advisors and their clients a mechanism for making investment decisions.

 

 

AUTHOR: Barry, Christopoher B Peavy, John W III Rodriguez, Mauricio

TITLE: PERFORMANCE CHARACTERISTICS OF EMERGING CAPITAL MARKETS

CITATION: Financial Analysts Journal. v54n1. Jan/Feb 1998. p. 72-80, 8 pages.

DESCRIPTORS: Studies; Asset allocation; Emerging markets; Portfolio performance; Rates of return; Statistical analysis

CLASS DESCR: (9190) United States; (9130) Experimental/theoretical treatment; (3400) Investment analysis; (9180) International;

ABSTRACT: Capital markets in developing countries have become an important asset class. These emerging markets are commonly associated with high returns, high volatility, and diversification benefits for investors in developed markets. A study used the Emerging Markets Data Base provided by the International Finance Corp. to examine the risk and return characteristics of emerging markets. Contrary to the results often presented in the popular press, the study found that these markets have not produced high levels of compound returns relative to US stock markets for the 20-year time period ending in June 1995. They have experienced a high lee of volatility, but they also have consistently provided diversification benefits when combined with developed market portfolios.

 

 

AUTHOR: Coller, Maribeth Yohn, Teri Lombardi

TITLE: MANAGEMENT FORECASTS: WHAT DO WE KNOW?

CITATION: Financial Analysts Journal. v54n1. Jan/Feb 1998. p. 58-62, 5 pages.

DESCRIPTORS: Corporate management; Earnings forecasting; Bias; Accuracy; Stock prices; Research

CLASS DESCR: (9190) United States; (9130) Experimental/theoretical treatment; (3400) Investment analysis;

ABSTRACT: Empirical research has addressed several issues related to management forecasts of earnings, including the motivations management may have to release forecasts voluntarily, bias in and accuracy of forecasts, and reactions to management forecasts. These issues are important to consider in order to interpret management forecasts properly. An article summarizes this body of research and concisely describes the findings. The discussion is intended to help analysts seeking to use the information in management forecasts in making their own assessments of a firm's future.

 

 

AUTHOR: Altman, Edward I Caouette, John B Narayanan, Paul

TITLE: CREDIT-RISK MEASUREMENT AND MANAGEMENT: THE IRONIC CHALLENGE IN THE NEXT DECADE

CITATION: Financial Analysts Journal. v54n1. Jan/Feb 1998. p. 7-11, 5 pages.

DESCRIPTORS: Bond portfolios; Bank loans; Credit risk; Credit management; Derivatives; Corporate debt

CLASS DESCR: (9190) United States; (3400) Investment analysis; (3200) Credit management; (8110) Commercial banking services;

ABSTRACT: Interest in and concern with credit risk management is escalating, despite historically low US default rates and losses in the loan and corporate bond markets. One reason is that lending institutions are increasingly comfortable with transacting their assets in counterparty arrangements whereby credit risk exposure is shifted. Because the markets in which credit assets are hedged or sold are quite young, still fairly illiquid, and probably inefficient, banks and their counterparties are struggling to amass the information and analytical foundation for valuing the underlying assets in some form of meaningful risk- return framework. This motivation has helped to stimulate the congruent coming of age of 4 important ingredients for the sophisticated treatment of corporate credit evaluation and management: 1. standalone valuation techniques, 2. attempts to resolve the portfolio credit risk problem, 3. comprehensive and fairly relevant databases, and 4. the advent and impressive early growth in the structuring and trading of credit-risk derivatives and various types of credit insurance and guarantees.

 

 

AUTHOR: Brown, Lawrence D

TITLE: ANALYST FORECASTING ERRORS: ADDITIONAL EVIDENCE

CITATION: Financial Analysts Journal. v53n6. Nov/Dec 1997. p. 81-88, 8 pages.

DESCRIPTORS: Studies; Investment advisors; Earnings forecasting; Errors; Bias; Trends

CLASS DESCR: (9190) United States; (8130) Investment services; (3400) Investment analysis;

ABSTRACT: Analyst forecasting errors are approximately as large as Dreman and Berry (1995) documented, and an optimistic bias is evident for all years from 1985 through 1996. In contrast to their findings, it is shown that analyst forecasting errors and bias have decreased over time. Moreover, the optimistic bias in quarterly forecasts was absent for S&P 500 firms from 1993 through 1996. Analyst forecasting errors are smaller for: 1. S&P 500 firms than for other firms, 2. firms with comparatively large amounts of market capitalization, absolute value of earnings forecast, and analyst following, and 3. firms in certain industries.

 

 

AUTHOR: Graham, John R Harvey, Campbell R

TITLE: GRADING THE PERFORMANCE OF MARKET-TIMING NEWSLETTERS

CITATION: Financial Analysts Journal. v53n6. Nov/Dec 1997. p. 54-66, 13 pages.

DESCRIPTORS: Studies; Newsletters; Investment advisors; Investment policy; Reliability; Performance evaluation

CLASS DESCR: (9190) United States; (8130) Investment services; (3400) Investment analysis;

ABSTRACT: Many investment newsletters offer market-timing advice; that is, they are supposed to recommend increased stock market weights before market appreciations and decreased weights before market declines. Examination of the performance of 326 newsletter asset-allocation strategies for the 1983- 1995 period shows that as a group, newsletters do not appear to possess any special information about the future direction of the market. Nevertheless, investment newsletters that are on a hot streak (have correctly anticipated the direction of the market in previous recommendations) may provide valuable information about future returns.

 

 

AUTHOR: Jensen, Gerald R Johnson, Robert R Mercer, Jeffrey M

TITLE: NEW EVIDENCE ON SIZE AND PRICE-TO-BOOK EFFECTS IN STOCK RETURNS

CITATION: Financial Analysts Journal. v53n6. Nov/Dec 1997. p. 34-42, 9 pages.

DESCRIPTORS: Studies; Federal Reserve monetary policy; Impact analysis; Size of enterprise; Financial ratios; Rates of return; Investment policy

CLASS DESCR: (9190) United States; (9130) Experimental/theoretical treatment; (1120) Economic policy & planning; (3400) Investment analysis;

ABSTRACT: Firm size and price-to-book-value ratio are prominent measures in explaining cross-sectional stock returns. Historically, average returns on shares of small- capitalization firms and low price-to-book firms have exceeded those on large-capitalization firms and high price-to-book firms. Recent evidence also shows that monetary policy developments significantly explain security returns. When the influence of the Federal Reserve's policy stance on stock returns was considered, it was found that size and price-to-book effects depend largely on the monetary environment. Specifically, the small-firm and low price-to-book premiums are economically and statistically significant only in expansive monetary policy periods and are small, and in some instances negative, in restrictive policy periods. This evidence suggests that investors should consider the Fed's policy stance when using strategies that rely on size or price-to- book ratio.

 

 

AUTHOR: Jennings, Ross LeClere, Marc J Thompson, Robert B II

TITLE: EVIDENCE ON THE USEFULNESS OF ALTERNATIVE EARNINGS PER SHARE MEASURES

CITATION: Financial Analysts Journal. v53n6. Nov/Dec 1997. p. 24-33, 10 pages.

DESCRIPTORS: FASB statements; SFAS 128; Financial accounting standards; Studies; Earnings per share; Disclosure; Dilution; Impact analysis

CLASS DESCR: (9190) United States; (4120) Accounting policies & procedures; (9130) Experimental/theoretical treatment; (3400) Investment analysis;

ABSTRACT: In February 1997, the Financial Accounting Standards Board adopted new reporting rules for earnings per share (EPS) - SFAS No. 128, Earnings per Share. The new standard replaces "primary" EPS with "basic" EPS and makes a minor adjustment in the computation of "fully diluted" EPS. A comparison of the extent to which basic, primary, and fully diluted EPS explain variation in stock prices for a large sample of NYSE- and Amex-listed firms from 1989 to 1995 suggests that analysts and investors are likely to be no worse off under the new standard than under the old and may, in fact, have access to better information under the new standard because of its enhanced disclosure requirements.

 

 

AUTHOR: Bodie, Zvi Crane, Dwight B

TITLE: PERSONAL INVESTING: ADVICE, THEORY, AND EVIDENCE

CITATION: Financial Analysts Journal. v53n6. Nov/Dec 1997. p. 13-23, 11 pages.

DESCRIPTORS: Studies; Personal finance; Asset allocation; Retirement planning; Economic theory

CLASS DESCR: (9190) United States; (9130) Experimental/theoretical treatment; (3400) Investment analysis; (1130) Economic theory;

ABSTRACT: Data from a unique survey containing information on the composition of the respondents' total asset holdings - both inside and outside their retirement accounts - shed light on individual asset-allocation behavior. Individual asset allocations are consistent with the recommendations of expert practitioners and with the prescriptions of economic theory. The survey respondents maintain in cash and near-cash investments a proportion of their wealth that declines as wealth increases. They hold these safe assets outside their retirement accounts. The proportion of total assets that they hold in equities declines with age and rises with wealth. They do not appear to manage their assets across retirement and nonretirement accounts to maximize tax efficiency.

 

 

AUTHOR: Berk, Jonathan B

TITLE: DOES SIZE REALLY MATTER?

CITATION: Financial Analysts Journal. V53n5. Sep/oct 1997. P. 12-18, 7 pages.

DESCRIPTORS: Size of enterprise; Earnings trends; Market value; Portfolio management; Business valuation; Financial analysis; Studies

CLASS DESCR: (9190) United States; (3400) Investment analysis; (9130) Experimental/theoretical treatment;

ABSTRACT: If the size of firms is measured correctly, small firms do not necessarily earn higher returns than larger firms. Yet, this finding is not inconsistent with the empirical fact that firms with small market values earn higher returns. Modern financial theory predicts that when firm size is economically unrelated to return, the relation between firm market value and return will be negative. The size enigma results from the measure of firm size used - the market value of common equity. Because this measure is not only a measure of firm size but also a measure of a firm's discount rate, even when firm size is not related to return, market value will be inversely related to return. Other measures of firm size show no evidence of a relation between firm size and return. The conclusion is that the size enigma results from the part of market value that measures the firm's discount rate and not from a relation between the size of firms and returns.

 

 

AUTHOR: Bettis, Carr Vickrey, Don Vickrey, Donn W

TITLE: MIMICKERS OF CORPORATE INSIDERS WHO MAKE LARGE-VOLUME TRADES

CITATION: Financial Analysts Journal. v53n5. Sep/Oct 1997. p. 57-66, 10 pages.

DESCRIPTORS: Insider trading; Rates of return; Studies; Securities analysis; Efficient markets

CLASS DESCR: (3400) Investment analysis; (9130) Experimental/theoretical treatment; (9190) United States;

ABSTRACT: Most prior research shows that corporate insiders can systematically earn abnormal returns by buying or selling their own securities. Also, several studies have investigated whether outsiders can earn abnormal returns by mimicking the trades of insiders after the latter report their trades. The findings of these studies suggest that they cannot. In contrast, this study's results indicate that outsiders can earn significant abnormal returns by mimicking such trades. This conclusion is consistent with a growing body of empirical literature that suggests that the market is not efficient in the semistrong form (i.e., is not efficient with respect to all publicly available information.)

 

AUTHOR: Healey, Thomas J Hardy, Donald J

TITLE: GROWTH IN ALTERNATIVE INVESTMENTS

CITATION: Financial Analysts Journal. v53n4. Jul/Aug 1997. p. 58-65, 8 pages.

DESCRIPTORS: Pension funds; Asset allocation; Alternatives; High yield investments; Polls & surveys; Statistical data; Portfolio performance

CLASS DESCR: (9190) United States; (9172) Canada; (8130) Investment services; (3400) Investment analysis; (9140) Statistical data;

ABSTRACT: The largest pension funds, endowments, and foundations in the US and Canada had commitments to alternative investments of almost $70 billion in 1995 - a 92% increase since 1992. Alternative investments composed an average of 5.5% of the total assets of funds that allocate dollars to this asset class, up from 3.6% in 1992. Public and corporate funds represented more than 86% of total dollar participation in alternative investments, while endowments and foundations, which commit a higher percentage of total assets than other funds, were relatively small in total dollars committed. Interest in international private equity has grown considerably and, along with venture capital, international private equity is identified as the most attractive alternative investment in the near future. The ability of alternative investments to outperform more traditional investments is the primary reason for participation in this asset class; perceived risk and lack of liquidity are the principal deterrents.

 

 

AUTHOR: Erb, Claude B Harvey, Campbell R Viskanta, Tadas E

TITLE: DEMOGRAPHICS AND INTERNATIONAL INVESTMENTS

CITATION: Financial Analysts Journal. v53n4. Jul/Aug 1997. p. 14-28, 15 pages.

DESCRIPTORS: Studies; Manycountries; Expected returns; Demographics; Variables; Risk assessment; International finance; Correlation analysis

CLASS DESCR: (9130) Experimental/theoretical treatment; (9180) International; (3400) Investment analysis;

ABSTRACT: Population demographics affect both the time-series and the cross-section of expected asset returns. A number of theories link the average age of a population to expected market returns. For example, Bakshi and Chen argue that an older population will demand a higher premium on equity investment because older people are more risk averse than younger people. It is argued that, in an international context, population demographics are likely to reveal information about the risk exposure of a particular country. The evidence supports the risk hypothesis.

 

 

AUTHOR: Hite, Gailen Warga, Arthur

TITLE: THE EFFECT OF BOND-RATING CHANGES ON BOND PRICE PERFORMANCE

CITATION: Financial Analysts Journal. v53n3. May/Jun 1997. p. 35-51, 17 pages.

DESCRIPTORS: Studies; Bond ratings; Changes; Rates of return; Securities prices; Statistical analysis

CLASS DESCR: (9190) United States; (3400) Investment analysis; (9130) Experimental/theoretical treatment;

ABSTRACT: The price reaction of publicly traded industrial bonds to Moody's Investors Service and Standard & Poor's bond-rating changes is investigated using a database of month-end trader quotes from Lehman Brothers for the period March 1985 through March 1995. All S&P and Moody's rating changes are studied in a period from up to 12 months before the rating change to 12 months after. A unique feature of the study is the use of a data set containing recent firm-specific information that also provides a long event window. Downgraded firms reveal a significant announcement effect in both the announcement month and preannnouncement period. The magnitude of downgrading effects increases dramatically as the sample moves from investment-grade to non-investment-grade firms. Samples that are restricted to rating changes that are not preceded by any rerating within 6 months reveal that the market reacts reliably as much as 6 months before an event. Upgrade effects are much weaker in magnitude and significance.

 

 

AUTHOR: Whitelaw, Robert F

TITLE: QUANTITATIVE FINANCIAL ECONOMICS: STOCKS, BONDS AND FOREIGN EXCHANGE

CITATION: Journal of Finance. v53n1. Feb 1998. p. 417-420, 4 pages.

DESCRIPTORS: Book reviews; Securities markets; Stocks; Bonds; Foreign exchange markets; Economic theory

CLASS DESCR: (9180) International; (3400) Investment analysis; (1130) Economic theory;

ABSTRACT: Quantitative Financial Economics: Stocks, Bonds and Foreign Exchange, by Keith Cuthbertson, is reviewed.

 

 

AUTHOR: Wang, Ko Li, Yuming Erickson, John

TITLE: A NEW LOOK AT THE MONDAY EFFECT

CITATION: Journal of Finance. v52n5. Dec 1997. p. 2171-2186, 16 pages.

DESCRIPTORS: Studies; Rates of return; Securities trading volume; Trends

CLASS DESCR: (9190) United States; (9130) Experimental/theoretical treatment; (3400) Investment analysis;

ABSTRACT: It is well documented that expected stock returns vary with the day of the week (the Monday or weekend effect). A paper shows that the well-known Monday effect occurs primarily in the last 2 weeks (4th and 5th weeks) of the month. In addition, the mean Monday return of the 1st 3 weeks of the month is not significantly different from zero. This result holds for most of the subperiods during the 1962-1993 sampling period and for various stock return indexes. The monthly effect reported by Ariel (1987) and Lakonishok and Smidt (1988) cannot fully explain this phenomenon.

 

 

AUTHOR: Bakshi, Gurdip Cao, Charles Chen, Zhiwu

TITLE: EMPIRICAL PERFORMANCE OF ALTERNATIVE OPTION PRICING MODELS

CITATION: Journal of Finance. v52n5. Dec 1997. p. 2003-2049, 47 pages.

DESCRIPTORS: Studies; Put & call options; Valuation; Hedging; Stochastic models; Volatility

CLASS DESCR: (9190) United States; (9130) Experimental/theoretical treatment; (3400) Investment analysis; (1130) Economic theory;

ABSTRACT: Substantial progress has been made in developing more realistic option pricing models. Empirically, however, it is not known whether and by how much each generalization improves option pricing and hedging. This gap is filled by first deriving an option model that allows volatility, interest rates, and jumps to be stochastic. Using S&P 500 options, several alternative models are examined from 3 perspectives: 1. internal consistency of implied parameters/volatility with relevant time-series data, 2. out-of-sample pricing, and 3. hedging. Overall, incorporating stochastic volatility and jumps is important for pricing and internal consistency. But for hedging, modeling stochastic volatility alone yields the best performance.

 

 

AUTHOR: Brav, Alon Gompers, Paul A

TITLE: MYTH OR REALITY? THE LONG-RUN UNDERPERFORMANCE OF INITIAL PUBLIC OFFERINGS: EVIDENCE FROM VENTURE AND NONVENTURE CAPITAL-BACKED COMPANIES

CITATION: Journal of Finance. v52n5. Dec 1997. p. 1791-1821, 31 pages.

DESCRIPTORS: Studies; Going public; Stock offerings; Rates of return; Long term; Venture capital; Comparative analysis

CLASS DESCR: (9190) United States; (9130) Experimental/theoretical treatment; (3400) Investment analysis;

ABSTRACT: A paper investigates the long-run underperformance of recent initial public offering (IPO) firms in a sample of 934 venture-backed IPOs from 1972-1992 and 3,407 nonventure-backed IPOs from 1975-1992. It is found that venture-backed IPOs outperform nonventure-backed IPOs using equal weighted returns. Value weighting significantly reduces performance differences and substantially reduces underperformance for nonventure- backed IPOs. In tests using several comparable benchmarks and the Fama-French (1993) 3 factor asset pricing model, venture-backed companies do not significantly underperform, while the smallest nonventure-backed firms do. Underperformance, however, is not an IPO effect. Similar size and book- to-market firms that have not issued equity perform as poorly as IPOs.

 

 

AUTHOR: Loughran, Tim Vijh, Anand M

TITLE: DO LONG-TERM SHAREHOLDERS BENEFIT FROM CORPORATE ACQUISITIONS?

CITATION: Journal of Finance. v52n5. Dec 1997. p. 1765-1790, 26 pages.

DESCRIPTORS: Studies; Acquisitions & mergers; Impact analysis; Shareholders wealth; Long term; Rates of return

CLASS DESCR: (9190) United States; (9130) Experimental/theoretical treatment; (2330) Acquisitions & mergers; (3400) Investment analysis;

ABSTRACT: Using 947 acquisitions during 1970-1989, a paper finds a relationship between the postacquisition returns and the mode of acquisition and form of payment. During a 5-year period following the acquisition, on average, firms that complete stock mergers earn significantly negative excess returns of -25.0% whereas firms that complete cash tender offers earn significantly positive excess returns of 61.7%. Over the combined preacquisition and postacquisition period, target shareholders who hold on to the acquirer stock received as payment in stock mergers do not earn significantly positive excess returns. In the top quartile of target to acquirer size ratio, they earn negative excess returns.

 

 

AUTHOR: Mikhail, Michael B Walther, Beverly R Willis, Richard H Jacob, John

TITLE: DO SECURITY ANALYSTS IMPROVE THEIR PERFORMANCE WITH EXPERIENCE? / DISCUSSION

CITATION: Journal of Accounting Research. v35 (Studies on Experts and the Application of Expertise Supplement). 1997. p. 131-166, 35 pages.

DESCRIPTORS: Studies; Analysts; Earnings forecasting; Accuracy; Investment policy; Time series; Statistical analysis

CLASS DESCR: (9190) United States; (9130) Experimental/theoretical treatment; (3400) Investment analysis; (8130) Investment services;

ABSTRACT: A study investigates if sell-side security analysts generate more accurate quarterly earnings forecasts and more profitable stock recommendations as their experience following a specific firm increases. The study measures firm-specific experience as the number of prior quarters for which the analyst has issued an earning forecast for the firm. It is documented that analysts improve their forecast accuracy as they gain firm-specific experience. This finding is robust to alternative specifications. Further, the study finds that the market recognizes the increased accuracy associated with experience in forming its expectations of earnings. The results suggest that knowledge of an analyst's experience can be used to improve the accuracy of consensus earnings forecasts. The discussion paper examines points of interest in the study and draws attention to possible confounding effects.

 

 

AUTHOR: Maines, Laureen A McDaniel, Linda S Harris, Mary S Koonce, Lisa

TITLE: IMPLICATIONS OF PROPOSED SEGMENT REPORTING STANDARDS FOR FINANCIAL ANALYSTS' INVESTMENT JUDGMENTS / DISCUSSION

CITATION: Journal of Accounting Research. v35 (Studies on Experts and the Application of Expertise Supplement). 1997. p. 1-33, 33 pages.

DESCRIPTORS: FASB statements; SFAS 131; FASB statements; SFAS 14; International Accounting Standards Committee Statements; IAS 14; International accounting standards; Financial accounting standards; Studies; Lines of business reporting; Analysts; Judgments; Variance analysis

CLASS DESCR: (9190) United States; (9130) Experimental/theoretical treatment; (4120) Accounting policies & procedures;

ABSTRACT: This paper provides evidence on how certain provisions of current and revised segment reporting standards might affect financial analysts' judgments. Specifically, the paper examines the effect of 2 alternative approaches to segment definition: segments defined by a company's internal reporting classification and segments defined by grouping similar products. For 20 years, the FASB has required segments to be defined by grouping similar products. A new standard, SFAS 131, Disclosures about Segments of an Enterprise and Related Information, requires segments to be defined by a company's internal reporting classification. The experimental results show that analysts perceived segment reporting to be more reliable when external and internal segments were congruent than when they were incongruent, and when similar products were combined in a segment than when dissimilar products were combined. The conference discussion of the paper focused on 3 issues: 1. experimental design, 2. construct validity, and 3. interpretation of results.

 

 

AUTHOR: Rees, Lynn Elgers, Pieter

TITLE: THE MARKET'S VALUATION OF NONREPORTED ACCOUNTING MEASURES: RETROSPECTIVE RECONCILIATIONS OF NON-U.S. AND U.S. GAAP

CITATION: Journal of Accounting Research. v35n1. Spring 1997. p. 115-127, 13 pages.

DESCRIPTORS: Studies; GAAP; Reconciliation; SEC filing requirements; Disclosure; Rates of return; Manycountries; Regression analysis

CLASS DESCR: (9190) United States; (9130) Experimental/theoretical treatment; (4120) Accounting policies & procedures; (3400) Investment analysis; (9180) International;

ABSTRACT: A study extends Amir, Harris, and Venuti's (1993) investigation of the association between share values or returns and reconciliations to US GAAP as disclosed in Form 20-F, the annual report filed with the SEC by non-US registrants. The value relevance of 20-F reconciliations of shareholders' equity is evaluated using retrospective reconciliations provided when a non-US firm files an initial registration with the SEC. The results indicate that market-to-book ratios in periods predating the initial SEC filing by at least 3 months are significantly associated with the shareholders' equity reconciliations disclosed in the registration statement. This result implies that at least some of the value-relevant information in the SEC-mandated disclosures is available to the market from other sources. Further analysis of the association between the retrospective reconciliations and annual returns for the year during which the reconciliations are initially disclosed to the market does not reveal an association between the reconciling items and security returns, which indicates that all of the value-relevant information captured in the reconciliation is fully impounded in prices prior to its disclosure.

 

 

AUTHOR: Maydew, Edward L

TITLE: TAX-INDUCED EARNINGS MANAGEMENT BY FIRMS WITH NET OPERATING LOSSES

CITATION: Journal of Accounting Research. v35n1. Spring 1997. p. 83-96, 14 pages.

DESCRIPTORS: Studies; Net operating losses; Carryback; Income shifting; Corporate taxes; Financial management; Statistical analysis; Timing differences

CLASS DESCR: (9190) United States; (9130) Experimental/theoretical treatment; (3100) Capital & debt management; (4210) Institutional taxation;

ABSTRACT: A paper investigates tax-induced intertemporal income shifting by firms with net operating loss (NOL) carrybacks. For several years following the tax rate reductions of the Tax Reform Act of 1986 these firms had incentives to shift recognition of revenues and expenses across years to increase their NOL carrybacks. The evidence indicates that firms from a treatment group of firm-years shifted gross margin forward from the 4th quarter of the NOL year to the 1st quarter of the following year and accelerated SG&A expenses from the 1st quarter after the NOL year to the 4th quarter of the NOL year. Both activities increase the magnitude of the NOL and thereby increase the refund of prior years' taxes. It is also found that treatment firms engaged in the selective dispositions of assets (or liabilities) at a loss, increasing the frequency of nonrecurring losses in the NOL year. Firms with larger tax incentives shift more, while firms claiming large amounts of investment tax credit (ITC) in prior years have a lower propensity to shift because of ITC limitations in the Internal Revenue Code.

 

 

 

AUTHOR: Francis, Jennifer Soffer, Leonard

TITLE: THE RELATIVE INFORMATIVENESS OF ANALYSTS' STOCK RECOMMENDATIONS AND EARNINGS FORECAST REVISIONS

CITATION: Journal of Accounting Research. v35n2. Autumn 1997. p. 193-211, 19 pages.

DESCRIPTORS: Studies; Earnings forecasting; Rates of return; Economic models; Securities analysis

CLASS DESCR: (9190) United States; (9130) Experimental/theoretical treatment; (3400) Investment analysis; (1130) Economic theory;

ABSTRACT: A paper examines the association between security returns and 2 attributes of sell-side analyst reports - stock recommendations (new and reiterated) and earnings forecast revisions. Other information in analyst reports is usually presented to support these 2 assessments of expected future firm performance. Tests attempt to distinguish the view that these 2 signals convey distinct information from the view that one signal subsumes the other. Results indicate that recommendations are informative. As a group, and after controlling for earnings forecast revisions, variables capturing the level of and the revision in stock recommendations explain a significant portion of the variation in cumulative abnormal returns.

 

 

AUTHOR: Walther, Beverly R

TITLE: INVESTOR SOPHISTICATION AND MARKET EARNINGS EXPECTATIONS

CITATION: Journal of Accounting Research. v35n2. Autumn 1997. p. 157-179, 23 pages.

DESCRIPTORS: Studies; Investors; Earnings forecasting; Economic models; Analysts; Earnings trends

CLASS DESCR: (9130) Experimental/theoretical treatment; (3400) Investment analysis; (1130) Economic theory;

ABSTRACT: A paper investigates whether sophisticated investors rely more on analyst forecasts than on time-series model forecasts in forming expected earnings. Although analyst forecasts are generally more accurate than time-series model forecasts, analyst forecasts are not clearly superior to time-series model forecasts as a proxy for expected earnings. Specifically, the study investigates if earnings- announcement-related returns are more closely associated with analyst forecasts for firms for which the marginal investor is more likely to be sophisticated. It is predicted that market participants place more weight on the analyst forecast for firms with high institutional ownership, firms with high analyst following and large firms.

 

 

AUTHOR: Wilson, G Peter

TITLE: DISCUSSION: WRITE-OFFS: MANIPULATION OR IMPAIRMENT?

CITATION: Journal of Accounting Research. v34 (Studies on Recognition, Measurement, and Disclosure Issues.. Supplement). 1996. p. 171-177, 7 pages.

DESCRIPTORS: Accounting theory; Writeoffs; Organizational behavior; Impaired assets

CLASS DESCR: (4120) Accounting policies & procedures; (2500) Organizational behavior; LANGUAGE: English

ABSTRACT: A discussion is presented of 3 papers which all make solid contributions to what potentially could be a fertile accounting literature. The papers are: 1. An Investigation of Asset Write-Downs and Concurrent Abnormal Accruals by Lynn Rees, Susan Gill and Richard Gore, 2. Repeated Accounting Write-Offs and the Information Content of Earnings by John A. Elliott and J. Douglas Hanna, and 3. Causes and Effects of Discretionary Asset Write-Offs by Jennifer Francis, J. Douglas Hanna, and Linda Vincent. It is argued that the authors focus far too much on the manipulation of the reported accounting numbers and far too little on the numbers' economic content.

 

 

AUTHOR: Guay, Wayne R Kothari, S P Watts, Ross L

TITLE: A MARKET-BASED EVALUATION OF DISCRETIONARY ACCRUAL MODELS

CITATION: Journal of Accounting Research. v34 (Studies on Recognition, Measurement, and Disclosure Issues.. Supplement). 1996. p. 83-105, 23 pages.

DESCRIPTORS: Studies; Accounting theory; Discretionary income; Accrual basis accounting; Regression analysis; Models; Earnings

CLASS DESCR: (9130) Experimental/theoretical treatment; (4120) Accounting policies & procedures;

ABSTRACT: In order to evaluate five discretionary-accrual models, a simple earnings model is specified, managerial discretion hypotheses are presented from existing literature, and efficient markets are assumed. The five discretionary accrual models are the same as those evaluated in Dechow, Sloan, and Sweeney (1995). Three managerial discretion hypotheses are specified. First, under the performance measure hypothesis, discretionary accruals help managers produce a reliable and more timely measure of firm performance than using nondiscretionary accruals alone. Second, the opportunistic accrual management hypothesis is that discretionary accruals are employed to hide poor performance or postpone a portion of unusually good current earnings to future years. Finally, discretionary accruals are noise in earnings. This is the noise hypothesis. The joint hypotheses are made explicit and explicit predictions are generated about the relative variability of earnings components, the correlation between discretionary accruals and nondiscretionary earnings, and the relation between stock returns and earnings components.

 

 

AUTHOR: Healy, Paul

TITLE: DISCUSSION OF A MARKET-BASED EVALUATION OF DISCRETIONARY ACCRUAL MODELS

CITATION: Journal of Accounting Research. v34 (Studies on Recognition, Measurement, and Disclosure Issues.. Supplement). 1996. p. 107-115, 9 pages.

DESCRIPTORS: Accounting theory; Models; Earnings; Accrual basis accounting; Discretionary income

CLASS DESCR: (4120) Accounting policies & procedures;

ABSTRACT: Guay, Kothari, and Watts's paper, A Market-Based Evaluation of Discretionary Accrual Models (1996), attempts to provide evidence on whether models of accruals are well specified by modeling the relation between stock returns, and discretionary accruals and nondiscretionary earnings. Taken at face value the findings of the paper have serious consequences for how readers should interpret the findings of earlier earnings management studies. However, such strong conclusions are premature given the critical assumptions that underlie the model. The paper is discussed in depth.

 

 

AUTHOR: Rees, Lynn Gill, Susan Gore, Richard

TITLE: AN INVESTIGATION OF ASSET WRITE-DOWNS AND CONCURRENT ABNORMAL ACCRUALS

CITATION: Journal of Accounting Research. v34 (Studies on Recognition, Measurement, and Disclosure Issues.. Supplement). 1996. p. 157-169, 13 pages.

DESCRIPTORS: Studies; Accounting theory; Financial statements; Writedowns; Accruals; Models; Regression analysis; Impaired assets; Organizational behavior

CLASS DESCR: (9130) Experimental/theoretical treatment; (4120) Accounting policies & procedures; (2500) Organizational behavior;

ABSTRACT: Abnormal accruals of firms recognizing permanent asset impairments in their financial statements are investigated to assess whether firms systematically manage earnings in the year of the write-down. Unlike in most prior studies, earnings management is not equated with opportunistic behavior. Instead, the possibility that managers use their discretion to provide value-relevant signals to investors is considered. In addition, the focus is on abnormal accruals taken concurrently with asset write-downs. If the primary motive for an asset write-down is opportunistic earnings management, firms may also exercise their discretion over operating accruals. Using a model of abnormal accruals that attempts to control for changes in the firm's economic environment, it is found that abnormal accruals in the year of the asset write-down are significantly negative.

 

 

AUTHOR: Elliott, John A Hanna, J Douglas

TITLE: REPEATED ACCOUNTING WRITE-OFFS AND THE INFORMATION CONTENT OF EARNINGS

CITATION: Journal of Accounting Research. v34 (Studies on Recognition, Measurement, and Disclosure Issues.. Supplement). 1996. p. 135-155, 21 pages.

DESCRIPTORS: Studies; Accounting theory; Writeoffs; Earnings; Models; Regression analysis; Investment policy

CLASS DESCR: (9130) Experimental/theoretical treatment; (4120) Accounting policies & procedures; (3400) Investment analysis;

ABSTRACT: The information content of earnings conditional on the presence of large nonrecurring or unusual charges is examined. The incremental information content of these special items is also investigated. Of particular interest is whether investors view earning differently after firms report large nonrecurring charges. Using quarterly Compustat data, firm- quarters are categorized according to the frequency with which firms report large special items during 1975-1994. The increasing frequency of reported special items, both positive and negative, during this period, is documented, noting that the increase in the frequency with which firms report negative special items (write-offs) is up to 3 times higher than the incidence of positive special items, and the divergence has increased. The analysis of the valuation implications of write-offs examines the weights that investors attach to the unexpected portions of earnings (before the impact of write- offs).

 

 

AUTHOR: Francis, Jennifer Hanna, J Douglas Vincent, Linda

TITLE: CAUSES AND EFFECTS OF DISCRETIONARY ASSET WRITE-OFFS

CITATION: Journal of Accounting Research. v34 (Studies on Recognition, Measurement, and Disclosure Issues.. Supplement). 1996. p. 117-134, 18 pages.

DESCRIPTORS: Studies; Accounting theory; Writeoffs; Statistical analysis; Impaired assets; Stock prices; Organizational behavior

CLASS DESCR: (9130) Experimental/theoretical treatment; (4120) Accounting policies & procedures; (2500) Organizational behavior; (3400) Investment analysis;

ABSTRACT: Evidence is provided on the causes and shareholder wealth effects of discretionary asset write-offs. The term "write-off" is used to refer to both complete and partial downward asset revaluations, and the sample write-offs are described as discretionary because over the 1989-1992 period covered by the study, there was little authoritative guidance on the accounting for most types of asset impairments, other than inventory. Evidence is provided on which of 2 factors, manipulation or impairment, drives write-off decisions and whether market reactions to write-offs depend on these factors. Stock price responses to write-off announcements are examined, both in aggregate and conditional on characteristics of the write-offs. The selection of the write-off and non-write-off samples is detailed and descriptive statistics are provided about the sample write-off announcements.