the changing time series properties of earnings cash flows and accruals has financial reporting become more conservative abstract this paper documents changes in the patterns of earnings cash flows and accruals over the last four decades in the absence of a generally accepted definition of conservatism a number of measures of reporting conservatism are identified and examined these measures rely on the accumulation of nonoperating accruals the timeliness of earnings with respect to bad and good news characteristics of the earnings distribution and the market to book ratio the patterns are consistent with an increase in conservative financial reporting over time the findings have implications for accounting standard setting regulation of financial information and financial statement analysis

do non socially responsible companies achieve legitimacy through socially responsible actions the mediating effect of innovation this study investigates the effects on organization s financial performances of first the extent to which the organizations are involved in controversial business activities and second their level of social performance these companies can be considered non socially responsible given the harmful nature of the activities they are involved in managers of these companies may still have incentives to pursue socially responsible actions if they believe that engaging on those actions will help them to achieve legitimacy and improve investors perception about them we develop a comprehensive methodology to investigate these corporate social performance csp related effects in a complex but specific setting to this end we analyze a sample of 202 us firms for the period 2005 2008 using a novel method in this area partial least squares our results indicate that contrary to the general findings in prior literature companies involved in controversial business activities which engage in csp do not directly reduce the negative perception that stakeholders have about them instead we found evidence of a positive mediation effect of csp on financial market based performance through innovation

analysis and modeling of active occupancy of the residential sector in spain an indicator of residential electricity consumption the growing energy consumption in the residential sector represents about 30 of global demand this calls for demand side management solutions propelling change in behaviors of end consumers with the aim to reduce overall consumption as well as shift it to periods in which demand is lower and where the cost of generating energy is lower demand side management solutions require detailed knowledge about the patterns of energy consumption the profile of electricity demand in the residential sector is highly correlated with the time of active occupancy of the dwellings therefore in this study the occupancy patterns in spanish properties was determined using the 2009 2010 time use survey tus conducted by the national statistical institute of spain the survey identifies three peaks in active occupancy which coincide with morning noon and evening this information has been used to input into a stochastic model which generates active occupancy profiles of dwellings with the aim to simulate domestic electricity consumption tus data were also used to identify which appliance related activities could be considered for demand side management solutions during the three peaks of occupancy

heterogeneity in time and energy use of watching television abstract there is substantial variability in residential energy use partly driven by heterogeneous behavioral patterns time use is relevant to energy when consumption tracks the time a device is used cluster analysis is a promising approach to identify time use patterns if clusters with particularly long time use and thus high energy consumption emerge these groups could merit targeted policy intervention we investigate these ideas via an empirical study of time use for television watching in the u s three clusters were identified in 2013 the average time spent watching television by clusters 1 2 and 3 are dramatically different 1 1 3 5 and 7 7 h per day respectively while members of cluster 3 are only 14 of the total population they represent 34 of tv energy consumption the population of cluster 3 tends to be older less employed and less educated energy savings per adopter is much larger for cluster 3 suggesting much higher benefits from efficient devices these results are relevant to the design of efficiency programs indicating potential for variable rebates and or tiered communication with variable rebates utilities would offer higher incentives to high use customers in tiered communication utilities would devote more resources to engage customers with larger savings potential

changes in the probability of bankruptcy and equity value abstract work in finance suggests that changes in the probability of bankruptcy likely affect firm value by affecting perceptions of the cost of transacting with the firm in this paper accounting information from the balance sheet as well as the income statement is used in conjunction with ohlson s 1980 bankruptcy prediction model to calculate unexpected changes in the probability of bankruptcy for a sample of firms with a large estimated probability of bankruptcy sometime during the ten year study period unexpected changes in the probability of bankruptcy are useful in explaining security returns even after controlling for unexpected earnings

changes in the value relevance of earnings and book values over the past forty years this paper investigates systematic changes in the value relevance of earnings and book values over time we report three primary findings first contrary to claims in the professional literature the combined value relevance of earnings and book values has not declined over the past forty years and in fact appears to have increased slightly second while the incremental value relevance of bottom line earnings has declined it has been replaced by increasing value relevance of book values finally much of the shift in value relevance fiom earnings to book values can be explained by the increasing frequency and magnitude of one time items the increasing frequency of negative earnings and changes in average firm size and intangible intensity across time

is there an energy efficiency gap many analysts have argued that energy efficiency investments offer an enormous win win opportunity to both reduce negative externalities and save money this overview paper presents a simple model of investment in energy using capital stock with two types of market failures first uninternalized externalities from energy consumption and second forces such as imperfect information that cause consumers and firms not to exploit privately profitable energy efficiency investments the model clarifies that only if the second type of market failure cannot be addressed directly through mechanisms such as information provision energy efficiency subsidies and standards may be merited this chapter therefore reviews the empirical work on the magnitude of profitable unexploited energy efficiency investments a literature which frequently does not meet modern standards for credibly estimating the net present value of energy cost savings and often leaves other benefits and costs unmeasured these problems notwithstanding recent empirical work in a variety of contexts implies that on average the magnitude of profitable unexploited investment opportunities is much smaller than engineering accounting studies suggest finally there is tremendous opportunity and need for policy relevant research that utilizes randomized controlled trials and quasi experimental techniques to estimate the returns to energy efficiency investments and the welfare effects of energy efficiency programs

how does residual income affect investment the role of prior performance measures this paper examines whether you get what you pay for in firms that implement residual income ri based compensation specifically this paper explores differences in investment patterns of firms that implement ri based compensation plans conditional on whether the firms switched from earnings or return on investment roi based compensation i find that the pattern of investment for firms switching to ri from earnings based compensation is opposite to that of firms switching from roi based compensation changes in investment within each individual subgroup yield weaker mixed results in addition this paper documents that delivered ri increases in firms that implement ri my paper contributes to the literature on the investment effects of ri by examining the relevance of a set of arguments that have been made in management accounting textbooks since 1965 these arguments are still found in current textbooks and are commonly taught to students in graduate level managerial accounting classes the arguments help us to examine a natural experiment in which we can better specify the conditions under which ri use is expected to be associated with changes in investment

the market valuation implications of net periodic pension cost components abstract this paper examines whether market participants implicitly assign different coefficients to pension cost components when determining security prices the major findings are 1 the pension cost components coefficients generally differ from one another as predicted the transition asset amortization coefficient is lower than other pension coefficients and is insignificantly different from zero 2 consistent with the market viewing pension related income streams as less risky the pension coefficients are generally larger than the nonpension coefficients additional specification tests permitting nonpension coefficients to vary with risk tax payer status and industry membership generally support the basic findings although the significance levels are generally higher

the information content of losses abstract this study hypothesizes that because shareholders have a liquidation option losses are not expected to perpetuate they are thus less informative than profits about the firm s future prospects the results are consistent with the hypothesis they also show that the documented increase in the earnings response coefficent as the cumulation period increases appears to be due exclusively to the effect of losses the liquidation option effect extends to profitable cases where earnings are low enough to make the option attractive alternating explanations for the low informativeness of losses such as mean reversal of earnings are not supported by the tests

how has the financial crisis affected earnings management a european study the article aims to investigate whether and how in the european union eu the burst of the 2008 financial crisis affected misrepresentation of financial information due to earnings management by analysing a sample of 11 844 firm year observations listed in the eu over the period 2006 2012 an event study methodology allows us to calculate and compare country by country abnormal accruals over the estimation period and over the event period our findings validate our research hypothesis and suggest a decrease of misrepresentation in the large majority of the european countries after the burst of the financial crisis the results take part in the debate in the accounting literature about the change of earnings management over a financial crisis and have several implications for standard setters and regulators that could learn how the common incentives of entities to attract potential investors during a crisis could lead them to provide a high quality financial reporting

a model of accrual measurement with implications for the evolution of the book to market ratio this paper constructs a model of accrual measurement and tests its implications for the evolution of the book to market ratio the model captures the intuition that book value is untimely or smoothed relative to market value so that movements in market value have relatively high variance and low predictability compared with movements in book value empirical tests of the model use lagged market value changes to forecast the mean reversion of the book to market ratio this paper complements recent research investigating the role of book to market ratios in security analysis accounting theorists e g edwards and bell 1961 and feltham and ohlson 1995 have long recognized the critical role of book to market ratios as predictors of abnormal earnings in earnings based valuation models tests of such valuation models e g ou and penman 1993 confront the practical problem of determining the horizon beyond which abnormal earnings are expected to be zero the model in this paper implies that this horizon is determined by the remaining useful life of assets and that the expected path of abnormal earnings over this horizon reflects the pattern of expiration of the useful lives of assets in place

earnings as an explanatory variable for returns in this paper we investigate whether the level of earnings divided by price at the beginning of the stock return period is relevant for evaluating earnings returns associations the primary model motivating this research relies on the idea that book value owners equity and market value are both stock variables indicating the wealth of the firm s equity holders the related flow variables after adjusting for dividends are respectively earnings divided by price at the beginning of the return period a p 1 and market returns it then follows that earnings divided by beginning of period price should be associated with stock returns although models based on a relation between market value and book value are used occasionally in the accounting research literature see for example landsman 1986 harris and ohlson 1987 and barth

income drawdown option with minimum guarantee abstract this paper deals with a constrained investment problem for a defined contribution dc pension fund where retirees are allowed to defer the purchase of the annuity at some future time after retirement this problem has already been treated in the unconstrained case in a number of papers the aim of this work is to deal with the more realistic case when constraints on the investment strategies and on the state variable are present due to the difficulty of the task we consider as a first step the basic model of gerrard haberman and vigna 2004 where interim consumption and annuitization time are fixed we extend their model by adding a no short selling constraint on the control variable and a final capital requirement constraint on the state variable this implies in particular no ruin the mathematical problem is naturally formulated as a stochastic control problem with constraints on the control and the state variable and is approached by the dynamic programming method we write the non linear hamilton jacobi bellman equation for the problem and transform it into a dual one that is semi linear following a well established duality procedure in the special relevant case without running cost we explicitly compute the value function for the problem and give the optimal strategy in feedback form a numerical application ends the paper and shows the extent of applicability of the model to a dc pension fund in the decumulation phase

fair value disclosures by bank holding companies abstract this paper examines the value relevance of fair value data disclosed under sfas 107 by banks for 1992 and 1993 collectively the evidence suggests differences between fair and book values of financial instruments are associated with market to book ratios however fair value disclosures for financial instruments other than securities are value relevant only in limited settings in addition only in 1992 are fair value variables associated with market to book ratios after incorporating existing historical cost information further analysis suggests the weaker 1993 results are not necessarily due to increased measurement error in fair value numbers

the relevance of the value relevance literature for financial accounting standard setting another view this paper explains that value relevance research assesses how well accounting amounts reflect information used by equity investors and provides insights into questions of interest to standard setters a primary focus of financial statements is equity investment other uses of financial statement information such as contracting do not diminish the importance of value relevance research value relevance questions can be addressed using extant valuation models value relevance studies address econometric issues that otherwise could limit inferences and can accommodate and be used to study the implications of accounting conservatism r 2001 elsevier science b v all rights reserved jel classification m41 m44 g12

exploring the role delaware plays as a domestic tax haven abstract we examine whether delaware is a domestic tax haven we find that taxes play an economically important role in determining whether u s firms locate subsidiaries in delaware and that a delaware based state tax avoidance strategy lowers state effective tax rates by between 0 7 and 1 1 percentage points on average the tax savings represent a 15 24 decrease in the state income tax burden and translate to an increase in net income of 1 04 1 47 however we find that the tax benefits of delaware tax strategies are diminishing over time in response to initiatives by state governments to limit multistate tax avoidance

a review of time use models of residential electricity demand residential electricity demand in most european countries accounts for a major proportion of overall electricity consumption the timing of residential electricity demand has significant impacts on carbon emissions and system costs this paper reviews the data and methods used in time use studies in the context of residential electricity demand modelling it highlights key issues which are likely to become more topical for research on the timing of electricity demand following the roll out of smart metres

design of incentive programs for accelerating penetration of energy efficient appliances abstract incentives are policy tools that sway purchase retail stocking and production decisions toward energy efficient products incentives complement mandatory standards and labeling policies by accelerating market penetration of products that are more energy efficient than required by existing standards and by preparing the market for more stringent future mandatory requirements incentives can be directed at different points in the appliance s supply chain one point may be more effective than another depending on the technology s maturity and market penetration this paper seeks to inform future policy and program design by categorizing the main elements of incentive programs from around the world we identify advantages and disadvantages of program designs through a qualitative overview of incentive programs worldwide we find that financial incentive programs have greater impact when they target highly efficient technologies with a small market share and that program designs depend on the market barriers addressed the target equipment and the local market context no program design is inherently superior to another the key to successful program design and implementation is a thorough understanding of the market and identification of the most important local obstacles to the penetration of energy efficient technologies

an empirical investigation of the role of indenture provisions in determining bond ratings abstract this paper documents the occurrence of indenture provisions of newly issued bonds and the relevance of these provisions to a bond s rating a chronicle of the various combinations of restrictive covenants reveals that four covenant combinations account for over 90 of the issues the evidence also suggests that convertibility of an issue vitiates stockholder bondholder conflict because these issues have few if any restrictive covenants also the indenture provisions of low rated subordinated issues appear to reflect a concern about the underinvestment problem while the opposite holds for high rated nonsubordinated issues the addition of indenture provisions to a bond rating model is shown to create a model superior to previous rating models this finding highlights the complex nature of the corporate financial contracting process consistent with past evidence moody s ratings are predicted more accurately than s p s ratings and split rated issues are predicted less accurately than commonly rated issues

acquisition premiums when investment banks invest their own money in the deals they advise and when they do not evidence from acquisitions of assets in the uk abstract this paper shows that investment banks that advise acquirers of assets negotiate favourable terms when they invest their own money in the deal but lead their clients to overpay when they do not have financial incentives acquirers pay the smallest premiums in divisional mbos when advised by the investment bank that finances the deal and the largest premiums in interfirm asset sales when advised by an investment bank remunerated contingent on deal completion premiums are in between the two extremes when acquirers do not use advisors these results are attributed to investment bank incentives which exacerbate the information asymmetry between buyers and sellers of assets

discretionary behavior with respect to allowances for loan losses and the behavior of security prices abstract the study examines the capital market pricing of discretionary and nondiscretionary components of a major accrual in the banking industry the allowance for loan losses the analysis employs a two stage approach in which the allowance account is first decomposed into estimates of its nondiscretionary and discretionary components the second stage evaluates the market s valuation of the estimates of the components evidence suggests that the capital market perceives the allowance to be comprised of two components a nondiscretionary component which is negatively priced and a discretionary component whose incremental pricing coefficient is positive

does the bonding effect matter in a more integrated capital market world abstract this paper examines the bonding effect of cross listing before and after the stock market liberalization reforms in china consistent with the bonding hypothesis we find that chinese firms with foreign listings attain higher valuations than firms without foreign listings we also find that they manage earnings less than comparable purely domestic listed firms and have more informative stock prices further investigation indicates that the divergence in earnings quality between cross listed and non cross listed firms shrinks dramatically after the chinese stock market liberalization reforms in 2001 and 2002 overall the results suggest that the bonding effect is mitigated in an increasingly integrated capital market world

relative valuation roles of equity book value and net income as a function of financial health abstract this study tests predictions that pricing multiples on and incremental explanatory power of equity book value net income increase decrease as financial health decreases tests using a sample of 396 bankrupt firms and tests using a larger pooled sample both yield inferences consistent with predictions findings are robust to inclusion of controls for industry size return on equity and volatility of equity returns equity book value and net income multiples and incremental explanatory power vary predictably across three illustrative industries selected based on the likely extent of unrecognized intangible assets

the significance of sell off profitability in explaining the market reaction to divestiture announcements abstract previous research on asset sales has emphasized the divestment motivation and the use of the proceeds from the sale as determinants of selling firm value gains in contrast this paper explores the extent to which the relevant information necessary to evaluate sell offs is embodied in the profitability of the sale i e the price received by the seller over the value in use of the divested assets where the latter is a function of past operating earnings and book value our empirical results show that sell off profitability is substantially more significant in explaining the market reaction to divestiture announcements than the previous literature has suggested we provide strong evidence of a positive relation between selling firm abnormal returns during sell off announcements and profit on the sale which remains significant after controlling for the motivation behind the sell off the use of the proceeds from the sale and the presence of agency costs of managerial discretion we conclude that sell off profitability explains a major portion of selling firm abnormal returns and is one of the most significant determinants of the market reaction to divestiture announcements

have financial statements lost their relevance the authors explore the concern that financial statements no longer have the same relevance to investors that they had in the past they test for value relevance by measuring the total return that could have been earned from prior knowledge of financial statement information and by examining the explanatory power of accounting information on market values and annual market adjusted returns both analyses are applied to a broad sample of exchange listed and nasdaq firms for the 1952 94 period the authors find mixed evidence on value relevance of financial statement reporting during the test period

discussion of asymmetric timeliness of earnings market to book and conservatism in financial reporting abstract roychowdhury and watts 2007 asymmetric timeliness of earnings market to book and conservatism in financial reporting journal of accounting and economics provide a thought provoking discussion of an important topic and consider a controversial role of accounting inconsistent with the valuation perspective of accounting currently adopted by standard setters the paper uses a contracts based view of accounting to explain the empirical relation between two measures of conservatism the market to book ratio and asymmetric timeliness although the predictions from their framework are consistent with the previously documented negative correlation between these measures suggesting this criticism of asymmetric timeliness may be misguided i will be surprised if their paper eliminates the controversy over these measures of conservatism

why are losses less persistent than profits curtailments vs conservatism it is well documented that losses are less persistent than profits and that stock prices anticipate the lower persistence of losses yet the underlying explanation for these results is unclear one explanation lies in the abandonment option whereby firms with losses are more likely to curtail operations e g hayn hayn c 1995 the information content of losses j accounting econom 20 2 125 153 another explanation involves timely loss recognition stemming from conservative accounting e g basu basu s 1997 the conservatism principle and the asymmetric timeliness of earnings j accounting econom 24 1 3 37 we provide direct evidence that curtailments are an important factor contributing to the lower persistence of losses an implication of our results is that popular measures of conservatism such as the measure proposed by basu also reflect curtailments this paper was accepted by suraj srinivasan accounting

the impact of cash flow volatility on discretionary investment and the costs of debt and equity financing abstract we show that higher cash flow volatility is associated with lower average levels of investment in capital expenditures r d and advertising this association suggests that firms do not use external capital markets to fully cover cash flow shortfalls but rather permanently forgo investment cash flow volatility also is associated with higher costs of accessing external capital moreover these higher costs as measured by some proxies imply a greater sensitivity of investment to cash flow volatility thus cash flow volatility not only increases the likelihood that a firm will need to access capital markets it also increases the costs of doing so