financial analysts forecast revisions and managers reporting behavior abstract this paper studies an analyst s forecasting strategy and a manager s earnings management policy when reporting earnings the manager trades off the disutility he obtains from falling short of the analyst s forecast against the costs of manipulating earnings the model predicts that i the analyst s forecast exceeds median reported earnings ii the analyst is more likely to revise his forecast downward than upward iii mean and median forecast errors are larger in magnitude when the analyst has less precise information and iv the stock market is on average more sensitive to reported earnings than to the analyst s forecasts

endogenous information flows and the clustering of announcements we consider the strategic timing of information releases in a dynamic disclosure model because investors don t know whether or when the firm is informed the firm will not necessarily disclose immediately we show that bad market news can trigger the immediate release of information by firms conversely good market news slows the release of information by firms thus our model generates clustering of negative announcements surprisingly this result holds only when firms can preemptively disclose their own information prior to the arrival of external information these results have implications for conditional variance and skewness of stock returns jel d21 d83 g12 g14 l11

religiosity and earnings management international evidence from the banking industry using an international sample of banks we study how differences in religiosity across countries affect earnings management given that religiosity is a major source of morality and ethical behavior it may reduce excessive risk taking and act as deterrence for earnings manipulations therefore we predict lower earnings management in societies that have higher religiosity consistent with expectations our cross country analysis indicates that religiosity is negatively related to income increasing earnings management for loss avoidance and just meeting or beating prior year s earnings we also find that religiosity reduces income increasing earnings management through abnormal loan loss provisions in additional tests we document that religiosity increases the information value of bank earnings with both earnings persistence and cash flow predictability being enhanced by higher religiosity for the crisis period analysis i e 2007 2009 our evidence shows that banks in countries with higher religiosity exhibit lower probability of reporting asset deterioration and lower probability of having poor performance

applying digital analysis to detect fraud an empirical analysis of us marine industry firms have tendency to window dress their financial statements by reporting earnings to achieve reference points represented by n 10 k such practice of reporting rounded earnings is likely due to 1 firms may believe that investors perceive a reported earnings of 1 99 million to be significantly less than 2 0 million and or 2 contracts between firms and stakeholders are likely to express earnings in round numbers auditors have employed more sophisticated digital analysis such as benford s law as part of their fraud detection processes this study investigated the window dressing behaviour among firms in the us marine industry the findings of the study suggest that window dressing is a significant practice among the marine firms however the extent of the pervasiveness of such behaviour is less severe among marine firms than among all publicly listed firms in the entire us economy suggesting that the quality of financial statements of marine companies is higher than the overall population of

the new political economy of food and agricultural development abstract this paper emphasizes the benefits of an agricultural strategy of development in the third world it begins by analysing the close links between food and employment in the development process this is followed by an examination of the important contribution that technological change in agriculture can make to the growth process and the role of politics and the state in influencing such a pattern of development it concludes that an agricultural strategy of development can increase domestic food production at the same time that it stimulates an equity oriented pattern of economic growth in the third world

discretionary accounting choices and the predictive ability of accruals with respect to future cash flows using a sample of restatement firms and a meet or beat model to classify firms as making discretionary accounting choices for opportunistic meet or beat op mb reasons we show that originally reported earnings and accrual components are less predictive of future cash flows relative to the restated numbers we find the opposite is true for firms classified as making discretionary accounting choices for non op mb reasons we consider a number of competing explanations for these latter results our findings are most consistent with the informational hypothesis weakly consistent with conservative motivated efficient contracting hypotheses but inconsistent with opportunistic contracting and misapplication errors of gaap explanations

the frequency and magnitude of earnings management in china earnings management is an indicator of the corporate governance quality and investor protection standard we study the frequencies and magnitudes of earnings management under two different thresholds zero earnings and prior earnings in the chinese market from 1997 to 2004 we model earnings as a mixed normal distribution and obtain parameter estimators that measure the frequency and magnitude of earnings management we show that the practice of earnings management has gone up both in frequency and magnitude during the post 2000 period we also find that the frequency and magnitude of earnings management are higher when firms try to avoid negative earnings than when firms try to report earnings increase our findings reflect the current economic environment in china and caution investors on the low disclosure quality in the chinese stock market

how pervasive is earnings management evidence from a structural model although researchers often view earnings management as being widespread measuring the cost and level of earnings management is a nontrivial task we derive a measure of earnings management cost an

industry window dressing we explore a new mechanism by which investors take correlated shortcuts and present evidence that managers using sales management take advantage of these shortcuts specifically we exploit a regulatory provision wherein a firm s primary industry is determined by the highest sales segment exploiting this regulation we provide evidence that investors classify operationally nearly identical firms as starkly different depending on their placement around this sales cutoff moreover managers appear to exploit this by manipulating sales to be just over the cutoff in favorable industries further evidence suggests that managers engage in activities to realize large tangible benefits from this opportunistic action

exploiting ergodicity in forecasts of corporate profitability abstract theory suggests that competition tends to equalize profit rates through the process of capital reallocation and numerous studies have confirmed that profit rates are indeed persistent and mean reverting recent empirical evidence further shows that fluctuations in the profitability of surviving corporations are well approximated by a stationary laplace distribution here we show that a parsimonious diffusion process of corporate profitability that accounts for all three features of the data achieves better out of sample forecasting performance across different time horizons than previously suggested time series and cross sectional models as a consequence of replicating the empirical distribution of profit rates the model prescribes a particular strength or speed for the mean reversion of all returns which leads to superior forecasts of individual time series when we exploit information from the cross sectional collection of firms the new model should appeal to managers analysts investors and other groups of corporate stakeholders who are interested in accurate forecasts of profitability to the extent that mean reversion in profitability is the source of predictable variation in earnings our approach can also be used in forecasts of earnings and is thus useful for firm valuation

performance shocks and misreporting we propose a parsimonious stochastic model of reported earnings that links misreporting to performance shocks our main analytical prediction is that misreporting leads to a negative second order autocorrelation in the residuals from a regression of current earnings on lagged earnings we also propose a stylized dynamic model of earnings manipulation and demonstrate that both earnings smoothing and target beating considerations result in the same predictions of negative second order autocorrelations empirically we find that the distribution of this measure is asymmetric around zero with 27 of the firms having significantly negative estimates using this measure we specify a methodology to estimate the intensity of misreporting and to create estimates of unmanipulated earnings our estimates of unmanipulated earnings are more correlated with contemporaneous returns and have higher volatility than reported earnings with respect to economic magnitude we find that in absolute terms median misreporting is 0 7 of total assets moreover firms in our sample subject to sec aaers have significantly higher estimates of manipulation intensity

a positive model of earnings forecasts top down versus bottom up this article analyzes the behavior of two groups of corporate earnings forecasters analysts who follow individual company fortunes and market strategists who predict earnings for various company aggregates using data for two market indices the s p 500 and the dow jones industrial average we document that bottom up forecasts are systematically more optimistic than top down forecasts made by strategists this difference is not driven by the difference in the forecast target this finding may be explained by the incentives that analysts face and or by cognitive bias

labor unemployment insurance and earnings management abstract we provide new evidence that firms appear to manage long run earnings upward in order to manage rank and file employees perceptions of employment security in particular we exploit exogenous state level changes in unemployment insurance benefits and test for partial unwinding of prior upward earnings management when benefits increase consistent with the hypothesis we find a significant reduction in abnormal accruals increased recognition of special items and write downs and greater likelihood of net income reducing restatements following an increase in state level unemployment benefits a number of cross sectional results are also consistent with the hypothesis

optimal hedging and equilibrium in a dynamic futures market abstract this paper considers an agent maximizing the expected utility of the sum of the terminal value of a fixed portfolio of spot market assets and the terminal value of a margin account on a futures trading position closed form solutions for the optimal hedging strategy are provided in several special cases

earnings manipulation and the cost of capital the cost of capital the widespread use of accounting information by investors and financial analysts to help value stocks creates an incentive for managers to manipulate earnings in an attempt to influence short term stock price performance this paper examines the role of earnings management in affecting a firm s cost of capital using an agency model with multiple firms whose cash flows are correlated we demonstrate that the extent of earnings manipulation varies across the business cycle depending on a firm s earnings profile it can have stronger incentives to overstate its performance in good times or in bad times because of this dependence on the state of the economy earnings manipulation can influence a firm s cost of capital despite the forces of diversification

do insurers manipulate loss reserves to mask solvency problems abstract we report that insurance firms manage loss reserves to avoid violating certain test ratio bounds known as iris ratios that are used by regulators for solvency assessment in our sample almost two thirds of the firms that would violate four or more iris ratios successfully adjust reserves to reduce the reported number of violations to less than four this finding is significant because four violations usually trigger regulatory intervention our results indicate that non earnings goals are an important influence on discretionary accounting choice they also suggest that reserve manipulation can postpone needed regulatory intervention sometimes for an extended period

does meeting earnings expectations matter evidence from analyst forecast revisions and share prices this paper investigates whether the market rewards firms meeting current period earnings expectations and whether any such reward reflects the implications of meeting expectations in the current period for future earnings or reflects a distinct market premium we document that abnormal annual returns are significantly greater for firms meeting expectations controlling for the information in the current year s earnings we then test whether firms meeting expectations experience higher returns simply because their expected future earnings are also higher we find firms meeting expectations have significantly higher earnings forecasts and realized earnings than firms that do not we find that controlling for these higher future earnings firms meeting expectations in one or two years do not receive a greater valuation than their fundamentals would suggest we find however that the market assigns a higher value to firms that meet expectations consistently controlling for an estimate of the firm s fundamental value

grain legume productivity in subsistence agriculture a global challenge abstract large increases in global cereal production have been primarily dependent on the use of nitrogen fertilizer productivity increases in grain legumes have been much smaller yet grain legumes play an important socioeconomic role in subsistence farming past legume improvement has been limited by lack of investment and significant research environmental and physiological constraints new international research initiatives are needed to increase grain legume yield by developing better plants improving biological nitrogen fixation and achieving more effective technology transfer with an increased emphasis on generic broadly applicable technologies

the effect of payment schemes on inventory decisions the role of mental accounting does the payment scheme have an effect on inventory decisions in the newsvendor problem keeping the net profit structure constant we examine three payment schemes that can be interpreted as the newsvendor s order being financed by the newsvendor herself scheme o by the supplier through delayed order payment scheme s and by the customer through advanced revenue scheme c in a laboratory study we find that inventory quantities exhibit a consistent decreasing pattern in the order of schemes o s and c with the order quantities of scheme s being close to the expected profit maximizing solution these observations are inconsistent with the expected profit maximizing model contradict what a regular or hyperbolic time discounting model would predict and cannot be explained by the loss aversion model instead they are consistent with a model that underweights the order time payments which can be explained by the prospective accounting theory in the mental accounting literature a second study shows that the results hold even if all physical payments are conducted at the same time suggesting that the framing of the payment scheme is sufficient to induce the prospective accounting behavior we further validate the robustness of our model under different profit conditions our findings contribute to the understanding of the psychological processes involved in newsvendor decisions and have implications for supply chain financing and contract design this paper was accepted by christian terwiesch operations management

the effect of audit adjustments on earnings quality evidence from china we examine how adjustments to earnings during year end audits affect measures of earnings quality there are four key findings first audit adjustments cause earnings to become smoother and more persistent second the adjustments result in higher accrual quality third audit adjustments have a larger negative effect on signed accruals than absolute accruals fourth the adjustments do not reduce the discontinuity in the earnings distribution around zero these findings are of interest to researchers who use earnings properties as proxies for earnings quality and audit quality however we caution that our findings for china may not generalize to other countries

minimizing cvar and var for a portfolio of derivatives value at risk var and conditional value at risk cvar are the most frequently used risk measures in current risk management practice as an alternative to var cvar is attractive since it is a coherent risk measure we analyze the problem of computing the optimal var and cvar portfolios in particular we illustrate that var and cvar minimization problems for derivatives portfolios are typically ill posed for example the var and cvar minimizations based on delta gamma approximations of the derivative values typically have an infinite number of solutions in this paper we focus on the portfolio selection problem which yields a portfolio of the minimum cvar with a specified rate of return we propose to include cost as an additional preference criterion for the cvar optimiza tion problem we demonstrate that with the addition of a proportional cost it is possible to compute an optimal cvar derivative investment portfolio with significantly fewer instru ments and comparable cvar and var a computational method based on a smoothing technique is proposed to solve a simulation based cvar optimization problem efficiently comparison is made with the linear programming approach for solving the simulation based cvar optimization problem

two sided learning and the ratchet principle i study a class of continuous time games of learning and imperfect monitoring a long run player and a market share a common prior about the initial value of a gaussian hidden state and learn about its subsequent values by observing a noisy public signal the long run player can nevertheless control the evolution of this signal and thus affect the market s belief the public signal has an additive structure and noise is brownian i derive conditions for an ordinary differential equation to characterize equilibrium behavior in which the long run player s actions depend on the history of the game only through the market s correct belief using these conditions i demonstrate the existence of pure strategy equilibria in markov strategies for settings in which the long run player s flow utility is nonlinear the central finding is a learning driven ratchet principle affecting incentives i illustrate the economic implications of this principle in applications to monetary policy earnings management and career concerns

earnings management and accounting income aggregation quarterly earnings allow aggregation into annual earnings in four different ways fiscal year earnings is one measure of annual earnings the others being earnings for annual periods ending at interim quarter ends we investigate earnings management in fiscal year earnings relative to these alternative measures of firms annual earnings we confirm prior findings in burgstahler and dichev 1997 earnings management to avoid earnings decreases and losses journal of accounting and economics 24 99 126 of discontinuities around zero and prior year earnings in histograms of earnings subsequent research questions whether these discontinuities are evidence of earnings management using histograms of our alternative annual earnings measures we offer evidence suggesting earnings management is responsible for the discontinuities

evidence that the zero earnings discontinuity has disappeared abstract discontinuities in earnings distributions at zero have been widely cited as evidence of earnings management but not without controversy recent research suggests discontinuities may be mere artifacts of certain research design choices we find that the well known zero earnings discontinuity disappears soon after passage of the sarbanes oxley act sox and has not returned we also find that neither the discontinuity nor its disappearance require the effects of widely cited alternative non earnings management explanations for the zero earnings discontinuity

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

the asymmetric relationship between executive earnings management and compensation a panel threshold regression approach abstractprior research shows that chief executive officers ceos are rewarded for their earnings management we re examine this issue using a panel threshold regression approach which allows the effect of earnings management on the ceo compensation to change across the level of earnings management and ceo compensation our results show that the effect of ceos discretionary accounting choices on their compensation is not homogeneous across various degrees of earnings management and compensation in particular for firms with moderate inordinate levels of earnings management and ceo compensation earnings management is rewarded penalized

founders heirs and corporate opacity in the united states abstract we argue that information about firm activities can vary substantially in the presence of founder or heir ownership thereby influencing the risks borne by minority investors we explore two hypotheses with regard to these controlling shareholders and corporate transparency focusing on their role as monitor in place and their potential to exploit firm opacity to accrue private benefits of control to test these notions we create an opacity index that ranks the relative transparency of the two thousand largest industrial us firms and find founder and heir ownership in 22 and 25 of these firms respectively our analysis indicates that in large publicly traded companies both founder and heir firms are significantly more opaque than diffuse shareholder firms we also find that founder and heir controlled firms exhibit a negative relation to performance in all but the most transparent firms surprisingly additional tests reveal that concerns about divergences in ownership versus control management type dual class shares and board influence appear to be substantially less important than corporate opacity in explaining the performance impacts of founder and heir control finally we decompose corporate opacity into disclosure and market scrutiny components finding that the disclosure quality component appears to be of greater importance to investors however irrespective of whether these controlling shareholders create or stay in the firm because of corporate opacity our analysis suggests that founders and heirs in large publicly traded firms exploit opacity to extract private benefits at the expense of minority investors

competition or manipulation an empirical evidence of determinants of the earnings persistence of the u s banks we examine the impact of competition on bank earnings persistence by exploiting a natural experiment following interstate banking deregulation that increased bank competition we find that bank earnings adjustment speed increases after their states implement the deregulation this relationship is weakened however with the increase of bank s abilities to sustain earnings as reflected in size diversification managerial efficiency and safety we further find that the impact of compeititon on bank earnings adjustment speed is direct but not indirectly through the channel of earnings management

does religion mitigate earnings management evidence from china using a sample of 11 357 firm year observations from the chinese stock market for the period of 2001 2011 we investigate whether and how religion can mitigate earnings management specifically based on geographic proximity based religion variables we provide strong and robust evidence to show that religion is significantly negatively associated with the extent of earnings management suggesting that religion can serve as a set of social norms to mitigate corporate unethical behavior such as earnings management our findings also reveal that the negative association between religion and earnings management is less pronounced for firms with closer distance to the regulatory centers than for their counterparts implying the substitutive effects between religion and the distance to regulators the proxy for regulatory intensity on mitigating earnings management the above results are robust to different measures of earnings management various religion variables and a variety of sensitivity tests

debt covenant violation and manipulation of accruals abstract this paper examines the abnormal accruals of a sample of 94 firms that reported debt covenant violations in annual reports we expect debt covenant restrictions to influence accounting choices in the year preceding and the year of violation time series and cross sectional models are used to estimate normal accruals in the year prior to violation both models indicate that abnormal total and working capital accruals are significantly positive in the year of violation there is evidence of positive abnormal working capital accruals after controlling for management changes and auditor going concern qualifications

what insiders know about future earnings and how they use it evidence from insider trades abstract this paper provides evidence that insiders possess and trade upon knowledge of specific and economically significant forthcoming accounting disclosures as long as 2 years prior to the disclosure stock sales by insiders increase three to nine quarters prior to a break in a string of consecutive increases in quarterly earnings insider stock sales are greater for growth firms before a longer period of declining earnings and when the earnings decline at the break is greater consistent with avoiding an established legal jeopardy there is little abnormal selling in the two quarters immediately prior to the break

empirical research on accounting choice abstract we review research from the 1990s that examines the determinants and consequences of accounting choice structuring our analysis around the three types of market imperfections that influence managers choices agency costs information asymmetries and externalities affecting non contracting parties we conclude that research in the 1990s made limited progress in expanding our understanding of accounting choice because of limitations in research design and a focus on replication rather than extension of current knowledge we discuss opportunities for future research recommending the exploration of the economic implications of accounting choice by addressing the three different reasons why accounting matters

managing risk in multi asset class multimarket central counterparties the core approach abstract multi asset class multimarket central counterparties ccps are becoming less uncommon as a result of merges between specialized single asset class single market ccps and market demands for greater capital efficiency yet traditional ccp risk management models often lack the necessary sophistication to estimate potential losses relative to the closeout process of a defaulter s portfolio in a multi asset class multimarket environment as a result multi asset class multimarket ccps usually rely on a simplified silo approach for risk calculation which not only fails to deliver efficiency but may also increase systemic risk the core closeout risk evaluation approach on the other hand provides conceptual and mathematical tools necessary for robust and efficient central counterparty risk evaluation in multi asset class and multimarket environments acknowledging the portfolio dynamics involved in the closeout process as well as important real life market frictions

earnings management behaviors under different monitoring mechanisms the case of islamic and conventional banks abstract we investigate the impact of organizational religiosity on the earnings quality of listed banks in the middle east and north africa region we analyze islamic banking institutions which operate within strict religious norms and extended accountability constraints and compare them with their conventional counterparts during 2008 2013 we find that islamic banks are less likely to manage earnings and that they adopt more conservative accounting policies based on these findings we argue that religious norms and moral accountability constraints in these organizations have a significant impact on financial reporting quality and agency costs which have implications for both regulators and market participants

identification of key sectors in the bangladesh economy a linkage analysis approach this paper purports to identify key sectors in the bangladesh economy employing the concepts of forward and backward linkages an attempt is made to rank sectors according to their employment and output potentials the paper draws a distinction between gross and net linkages defined respectively on the inverses of the leontief technology matrix and the domestic matrix using data for bangladesh it is shown that the transition from gross to net linkages implies significant divergence in sectoral rankings this appears to be true for ranking of sectors in terms of output and employment suggesting a potential conflict between employment and output generation potentials particularly in the industrial sectors when net linkages are considered agricultural sectors appear to rank high on both counts

earnings quality evidence from the field abstract we provide insights into earnings quality from a survey of 169 cfos of public companies and in depth interviews of 12 cfos and two standard setters cfos believe that i above all high quality earnings are sustainable and repeatable specific characteristics include consistent reporting choices backing by actual cash flows and absence of one time items and long term estimates ii about 50 of earnings quality is driven by non discretionary factors such as industry and macro economic conditions iii in any given period about 20 of firms manage earnings to misrepresent economic performance and for such firms 10 of eps is typically managed iv earnings manipulation is hard to unravel from the outside but peer comparisons and lack of correspondence between earnings and cash flows provide helpful red flags in addition cfos disagree with current standard setting on a number of issues including the sheer number of promulgated rules the top down approach to rule making the neglect of the matching principle and the emphasis on fair value accounting they indicate that a rules based culture makes the audit function centralized and mechanical and hinders the development of audit professionals a summary impression from our work is that cfos view earnings quality as more of a single and unconditional characteristic in contrast to current research where measures of earnings quality are strongly conditional on the decision setting this cfo view is related to their idea of one number a single earnings metric that shapes both their interactions with external stakeholders and internal decision making

annual bonus schemes and the manipulation of earnings abstract using confidential data of executive specific short term bonus plans we investigate the extent to which executives manipulate earnings to maximize the present value of bonus plan payments as such this paper extends the work of healy 1985 like healy we find evidence consistent with the hypothesis that managers manipulate earnings downwards when their bonuses are at their maximum unlike healy we find no evidence that managers manipulate earnings downwards when earnings are below the minimum necessary to receive any bonus we demonstrate that healy s results at the lower bound are likely to be induced by his methodology

the effect of cash flow forecasts on accrual quality and benchmark beating when analysts provide forecasts of both earnings and operating cash flow they also implicitly provide a forecast of total operating accruals we posit that this increases the transparency and the expected costs of accrual manipulations used to manage earnings as a consequence we predict and find that accrual quality improves and firms propensity to meet or beat earnings benchmarks declines following the provision of cash flow forecasts we also predict and find that firms turn to other benchmark beating mechanisms such as real activities manipulation and earnings guidance in response to the provision of cash flow forecasts

do baths muddy the waters or clear the air we examine the information environments of firms following large non recurring charges baths we test competing hypotheses about the consequences of a bath a bath either improves the information environment the transparency hypothesis or degrades it the opacity hypothesis difference in differences analysis suggests that after a bath 1 earnings become smoother 2 firm level information asymmetry decreases and 3 stock returns become more responsive to unexpected earnings we interpret these findings as supportive of the transparency hypothesis we also document that the relative improvement in the information environment is greater for baths that are not voluntary consistent with managerial obfuscation prior to the bath

risk management strategies via minimax portfolio optimization recent extreme economic developments nearing a worst case scenario motivate further examination of minimax linear programming approaches for portfolio optimization risk measured as the worst case return is employed and a portfolio from maximizing returns subject to a risk threshold is constructed minimax model properties are developed and parametric analysis of the risk threshold connects this model to expected value along a continuum revealing an efficient frontier segmenting investors by risk preference divergence of minimax model results from expected value is quantified and a set of possible prior distributions expressing a degree of knightian uncertainty corresponding to risk preference determined the minimax model will maximize return with respect to one of these prior distributions providing valuable insight regarding an investor s risk attitude and decision behavior linear programming models for financial firms to assist individual investors to hedge against losses by buying insurance and a model for designing variable annuities are proposed

earnings management to avoid earnings decreases and losses this paper provides evidence that firms manage reported earnings to avoid earnings decreases and losses specifically in cross sectional distributions of earnings changes and earnings we lind unusually low frequencies of small decreases in earnings and small losscs and unusually high frequencies of small increases in earnings and small positive income we find evidence that two components of earnings cash flow from operations and changes in working capital are used to achieve increases in earnings we present two theories based on stakeholder use of information processing heuristics and prospect theory about the motivation for avoidance of earnings decreases and losses

do bright line earnings surprises really affect stock price reactions several influential studies have concluded that earnings surprises just to the right or to the left of a hypothesized bright line produce distinct price reactions compared with surrounding earnings surprises because they convey special meaning in this study we examine whether previous inferences of asymmetric stock price reactions to bright line surprises are observed when empirical tests are designed to be consistent with a rational expectations equilibrium focusing on a small range of earnings surprises around hypothesized bright lines we find no evidence of asymmetric price reactions once investors ex ante expectation of bias in earnings surprises is controlled results from additional tests yield support for the external validity of the theoretical framework underlying our bright line pricing tests our findings suggest simple refinements to traditional bins comparison and regression tests for asymmetric price reactions to bright line earnings surprises which account for necessary conditions imp

analyst coverage and corporate tax aggressiveness abstract we examine the impact of analyst coverage on corporate tax aggressiveness to address endogeneity concerns we perform a difference in differences analysis using a setting which causes exogenous decreases in analyst coverage our tests identify a negative causal effect of analyst coverage on tax aggressiveness suggesting that higher analyst coverage constrains corporate tax aggressiveness further cross sectional variation tests find that this constraining effect on tax aggressiveness is more pronounced in firms with lower investor recognition and firms with more opaque information environments our results are consistent with the notion that higher analyst coverage increases the visibility of aggressive tax planning behavior as well as heightens analysts demand for more transparent information which in turn reduces tax aggressiveness

asymmetric stationarity in national stock market indices an mtar analysis a procedure is developed using a momentum threshold autoregressive model and asymmetric stationarity tests designed to identify periods of asymmetric stationary divergences from nonstationary paths in time series and is applied to major national stock indices the results reveal the existence of asymmetric stationary periods in each of these indices these results suggest an explanation for the counterintuitive positive forecasting results of technical traders for various time periods we explore this possibility further by using a representative moving average technical trading strategy and find significantly different results higher returns when information from the procedure is incorporated into a trading rule

investor expectations earnings management and asset prices abstract this paper examines the implications of investor expectations for the joint determination of earnings manipulation and asset prices three alternative models of investor expectations are studied constant gain learning regime shifting beliefs and accounting information system ais beliefs i use the simulated method of moments smm to estimate the most plausible model that matches the actual data ais beliefs and regime shifting beliefs are shown to best explain the empirical moments of 63 and 32 of s p 500 firms respectively regression analysis suggests that the three models offer different predictions on the existence and magnitude of several empirical regularities including a positive earnings response coefficient the discretionary accruals anomaly and return momentum

the use of input output analysis to determine the appropriateness of technology and industries evidence from bangladesh since the proportion of available capital to labor is low in ldcs compared to the developed countries the most appropriate techniques for ldcs from an economic point of view are likely to be the laborintensive ones if we suppose that there is a single most efficient technique for each industry and if it technologically requires labor and capital in fixed proportions the most appropriate industries for ldcs are likely to be the labor intensive ones this is because of the close correspondence between industries and their technological requirements on an international scale this appropriateness is given some support by the heckscher ohlin theorem of international specialization in production as is well known this theorem indicates subject to various assusmptions that countries should specialize in the production of goods that make use of their relatively abundant factors of production the aim of this paper is to identify appropriate industries for bangladesh in view of the relative availability of labor and capital and taking into account the amount of labor and capital needed both directly and indirectly to produce output for each industry unfortunately as specified below a number of previous studies of appropriate techniques and industries have ignored the indirect requirements for labor and capital needed to produce the various intermediate products used in these industries interindustry analysis based on the assumption that the adopted techniques require inputs to be combined in fixed

the allowance for uncollectible accounts conservatism and earnings management we study the interrelation between conservatism and earnings management by examining the allowance for uncollectible accounts and its income statement counterpart bad debt expense we find that the allowance is conservative and that it has become more conservative over time conservatism may however facilitate earnings management we find that firms manage bad debt expense downward and even record income increasing bad debt expense to meet or beat analysts earnings forecasts and that conservatism accentuates the extent to which firms manage bad debt expense further we find that firms manage bad debt expense downward by drawing down previously recorded over accruals of bad debt expense that have accumulated on the balance sheet an implication of our study is that tighter limits on the amount by which firms are permitted to understate net assets may reduce their ability to manage earnings

the effect of earnings forecasts on earnings management we develop a theory of the association between earnings management and voluntary management forecasts in an agency setting earnings management is modeled as a window dressing action that can increase the firm s reported accounting earnings but has no impact on the firm s real cash flows earnings forecasts are modeled as the manager s communication of the firm s future cash flows we show that it is easier to prevent the manager from managing earnings if he is asked to forecast earnings we also show that earnings management is more likely to follow high earnings forecasts than low earnings forecasts finally our analysis shows that shareholders may not find it optimal to prohibit earnings management earlier results rationalize earnings management by violating some assumption underlying the revelation principle by contrast in our model the principal can make full commitments and communication is unrestricted nonetheless earnings management can be beneficial as it reduces the cost of eliciting truthful forecasts

the food sector and economic growth abstract this paper analyses the contribution of the food sector disaggregated into raw and processed sectors to economic growth using the input output method and data from greece the interdependence between food and non food sectors is examined it is found that the food sector substantially influences economic output income and employment the processed food sector generates output for the non food sector whereas the non food sector provides inputs for the food sector it is concluded that policies that permit balanced sectoral growth can benefit both the food and non food sectors and lead to stable economic growth in the long run

a new approach to determining sectoral priorities in an economy input output elasticities this paper uses input output elasticities to identify important economic sectors elasticities of output employment and income are used to identify key sectors of the greek economy a comparison of the rankings of economic sectors based on input output elasticities with those based on net backward linkages indicates significant divergence in sectoral rankings obtained from the two approaches the elasticity approach yields more consistent estimates of sectoral output employment and income potentials than the net backward linkage approach measured in terms of the potential to generate output employment and income agriculture services and textiles are found to be the key sectors for the greek economy

asset returns under periodic revelations of earnings management the article investigates stock return dynamics in an environment where executives have an incentive to maximize their compensation by artificially inflating earnings a principal agent model with financial reporting and managerial effort is embedded in a lucas asset pricing model with periodic revelations of the firm s underlying profitability the return process generated from the model is consistent with a range of empirical regularities observed in the return data volatility clustering asymmetric volatility and high idiosyncratic volatility the calibration results further indicate that earnings management can be quantitatively important in accounting for the dynamic patterns of stock returns abstract from author

disclosures and asset returns public information in financial markets often arrives through the disclosures of interested parties who have a material interest in the reactions of the market to the new information when the strategic interaction between the sender and the receiver is formalized as a disclosure game with verifiable reports equilibrium prices can be given a simple characterization in terms of the concatenation of binomial pricing trees there are a number of empirical implications the theory predicts that the return variance following a poor disclosed outcome is higher than it would have been if the disclosed outcome were good also when investors are risk averse this leads to negative serial correlation of asset returns other points of contact with the empirical literature are discussed

a temporal analysis of earnings surprises profits versus losses i show that median earnings surprise has shifted rightward from small negative miss analyst estimates by a small amount to zero meet analyst estimates exactly to small positive beat analyst estimates by a small amount during the 16 years 1984 to 1999 i show that a rightward temporal shift in median surprise from negative to positive describes earnings but neither profits nor losses median profit surprise shifts within the positive quadrant from zero to one cent per share median loss surprise shifts within the negative quadrant from extreme negative about 33 cents per share to zero i show that the median surprise for profits exceeds that for losses in every year i document significant positive temporal trends in both meet and beat analyst estimates for both profits and losses but i find a greater frequency of profits that either meet or beat analyst estimates in every year i find a significant positive temporal trend in positive profits that are a little bit of good news and a significant negative temporal trend in managers who report losses that are an extreme amount of bad news my results are robust to the four internal validity threats i consider namely temporal changes in 1 analyst forecast accuracy 2 the mix of earnings of one sign preceded by earnings of another sign four quarters ago 3 the timeliness of the most recent analyst forecast and 4 the i b e s definition of actual earnings i find that managers of growth firms are relatively more likely than managers of value firms to report good news profits i show that when they do report positive profit surprises managers of growth firms are more likely to report a little bit of good news in every year

overstatement and rational market expectation abstract when an agent overstates his her true performance a rational market can still correctly guess the true performance this paper shows however that such rational market expectation and a profit maximizing principal can exacerbate the lack of productive effort by the agent

initial evidence on the role of accounting earnings in the bond market we document that 1 the incidence of bond trade increases during the days surrounding earnings announcements 2 there is a bond price reaction to the announcement of earnings and 3 there is a positive association between annual bond returns and both annual changes in earnings and annual analysts forecast errors all of these effects are larger when earnings convey bad news or when the underlying bond is more risky taken together our results suggest that the nonlinear payoff structure of bond securities affects the role of accounting earnings in the bond market

how control system design influences performance misreporting this paper investigates reporting honesty when managers have monetary incentives to overstate their performance we argue that managers who report about their performance will take into account how their report affects their peers i e other managers at the same hierarchical level this effect depends on the design of the organization s control system in particular on the reward structure and the information policy regarding individual performance reports the reward structure determines if peers monetary payoff is increased or decreased when managers claim a higher level of performance the information policy determines if managers will be able to link individual peers to their reports and affects the nonmonetary costs of breaking social norms we present the results of a laboratory experiment as predicted we find that participants are more likely to overstate their performance if this increases the monetary payoff of others than if their reported performance decreases others monetary gains in addition overstatements are lower under an open information policy where each individual s reported performance is made public compared to a closed information policy where participants only learn the average performance of the other participants our findings have several important implications for management accounting research and practice

earnings management the shapes of the frequency distributions of earnings metrics are not evidence ipso facto we provide evidence that the shapes particularly around zero of the frequency distributions of earnings metrics examined in the extant earnings management literature are affected by 1 deflation using for example price or market capitalization 2 sample selection criteria that lead to differential inclusion exclusion of observations to the left of zero versus observations to the right of zero implicit in studies focusing on firms followed by i b e s and explicit in studies partitioning on a variable differing between loss observations and profit observations 3 differences between the characteristics of observations to the left of zero and observations to the right of zero such as market pricing and analyst optimism pessimism or 4 a combination of these factors since the shapes of the frequency distributions of earnings metrics at zero are likely due to one of the above effects we conclude that the shapes cannot be used as ipso facto evidence of earnings management

does managerial sentiment affect accrual estimates evidence from the banking industry abstract we examine whether managerial sentiment is associated with errors in accrual estimates using public banks we find 1 managerial sentiment is negatively associated with loan loss provision estimates 2 future charge offs per dollar of provision are positively associated with sentiment when the provision is estimated and 3 the effects of sentiment are greater for firms with more uncertain charge offs results are similar for private banks suggesting accrual manipulation related to capital market incentives is unlikely to explain the results although economic fundamentals explain most of the variation in the provision we find sentiment has an incremental and economically meaningful effect